Here is his most recent article:

An above average 2010, from Sam Eisenstadt

Perhaps now that he has left Value Line we'll learn a bit about what really went on with that ranking system?

Kim Zussman replies:

Similar results [to what Sam Eisenstadt reported regarding "rally from recession lows"] when isolating on major declines in DJIA (1929-09, weekly closes), defined as:

This weeks close = low for prior and future 20 weeks (major low) + This weeks close = low for prior 255 weeks (5 year low)

Using this definition, here is the size of the decline (from max prior 5 years to the major low), return next 40 weeks, and return for 20 weeks following the first 40:

Date         decline    nxt 40W    nnxt 20W
03/02/09    -0.53      0.59      ?
09/30/02    -0.36      0.22      0.12
12/02/74    -0.45      0.41      0.21
05/18/70    -0.33      0.38     -0.07
04/20/42    -0.50      0.35      0.14
07/05/32    -0.89      0.99      0.15
11/11/29    -0.40      0.05     -0.30

Four out of 6 subsequent 20W returns were positive, with the notable exception of 1929 (whose repetition has been ruled out through close study by the current Fed Chair).

Phil McDonnell writes:

What went wrong with the rankings? Gaming may be part of the answer. Sam Eisenstadt clearly did not know the answer when I asked him a few years ago. In my opinion, the SEC has the best theory but they let the 'monsters' off easily with only a fine and no admission of wrongdoing. According to the SEC they were funneling money off to an in-house brokerage, in effect skimming the investors.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Sam Eisenstadt replies:

I hope Phil is not implying that I was somehow involved in the SEC case against Value Line. Nowhere in the SEC charges am I mentioned, nor was I aware of the goings-on in the brokerage area. As far as Jim is concerned, I recognize that he has never been a fan of the Value Line Ranking System, even when it was performing well from the late 1960s into the late 1990s. I would recommend he read Fischer Black's "Yes Virginia, There is Hope — Tests of the Value Line Ranking System. " In recent years, the system had problems as "earnings growth," (the major component in the system) was deemphasized in favor of "value" factors. The Niederhoffer Theory of Changing Cycles. Perhaps we're approaching another change, in which event we may not hear from Jim for a while.

Victor Niederhoffer explains:

What everyone associated with, or knowing of, Sam Eisenstadt, certainly all contributors here and those associated with me, has thought about this issue is that Sam is just the finest gentleman anyone has ever had the pleasure of meeting. A beacon of light in our industry. The Osborne of fundamentals. The Balder of our field. What a joy to have him swinging and gliding again unfettered from the River Styx.





Speak your mind

2 Comments so far

  1. Barry Gitarts on January 2, 2010 9:41 am

    I remember once seeing a presentation by Mitch Zacks, explaining the Zacks ranking methodology. It tracks the earning estimate revisions of sell-side analysts. At the end of the presentation he said "Valueline does the same thing, they will never admit it, but they do the same thing."

  2. Sam Humbert on January 4, 2010 3:23 pm

    Things are different now. Any buyside desk-monkey with a copy of ClariFI can run point/click factor cross-sectional analyses that would have taken months of effort years back. In 2009 growth/momentum factors didn't "work" — but neither did value factors, by and large. It wasn't a growth-vs-value year, it was a drain-the-quants year.


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