This page shows the current state of InnovationOwl's automated U.S. small cap stock selection system, the Owl's Nest. The current state of the system is illustrated below by a graph of the Owl's Nest Index, the current system holdings and performance tables. These are scheduled to be updated daily (barring any unforeseen technical difficulties). The following links provide other relevant information:
| Company Name | Symbol |
|---|---|
| NATIONAL ATL HLD COR | NAHC |
| HANSEN NATURAL COR | HANS |
| SUN HYDRAULICS COR | SNHY |
| COMPUCREDIT CORP | CCRT |
| VENTANA MED SYSTEM | VMSI |
| UNIVERSAL AMERICAN | UHCO |
| PANERA BREAD A | PNRA |
| GOL |
| Value | Since last evaluated (on Oct 18, 2005 @ 13:29PST ) |
One Month (Since Sep 19, 2005) |
Three Month (SinceJul 19, 2005) |
Six Month (Since Apr 19, 2005) |
One year (Since Oct 22, 2004) |
Since Inception (Dec 10, 2002) |
|
|---|---|---|---|---|---|---|---|
| US Small Cap Equally Weighted Index | 177.95 | 1.7% | 4.15% | -8.4% | 10.08% | 6.24% | 77.95% |
| S&P 500 | 1195.76 | 1.5% | -2.86% | -2.73% | 3.73% | 9.13% | 32.21% |
| Russell 2000 | 638.28 | 2.07% | -4.31% | -4.57% | 7.28% | 12.42% | 62.22% |
| NASDAQ | 2091.24 | 1.71% | -2.52% | -3.77% | 8.22% | 9.2% | 50.37% |
We refer to the subset of stocks in the U.S. Small Cap universe that meet our defined criteria as the Owl's Nest©. It is our opinion that some of the stocks from this list are and will continue to be extremely successful growth companies. The Owl's Nest is maintained using a computer algorithm that is focused on quantitative number crunching but can easily overlook the most basic qualitative red flags. For this reason it is important that one practices due diligence when selecting investments from the Owl's Nest.
In order to track the performance of the Owl's Nest stocks and benchmark them to the major indexes, the Owl's Nest Index© (ONI) was initiated on Dec. 10, 2002 at $100 and is an index of stocks that meet our selection criteria. The index is maintained such that rebalancing is targeted to occur at the close of each trading day. The number of stocks can vary from one day to the next and rebalancing results in an equal dollar position in each stock in the index set.
The Owl's Nest Index is not a historical simulation but rather a representation of what would be achieved if one were to hold all the stocks selected by the system. As this is really our own US Small Cap Index, the goal of the selection criteria is to outperform the Russell 2000 benchmark in terms of risk and return. Currently dividends, transaction costs, and taxes are not accounted for in the tracking of the index and share positions may be fractional.
The purpose of the selection criteria is to limit the universe of small cap stocks to a small handful called the Owl's Nest. The stocks that make up the Owl's Nest at any given point in time meet our set of proprietary criteria at that point in time. The criteria are based on a variety of parameters including quarterly and yearly financial statement fundamentals, earnings growth, relative price performance, market capitalization, liquidity, insider and institutional holdings to name a few.
The selection criteria are implemented using parameterized software that can be tuned to implement a variety of different selection indices. In addition to implementing the Owl's Nest Small cap selection criteria, we have also implemented a TSX Growth System and are working to develop other new systems.
System Commentary
Mon Feb 14 16:28:41 PST 2005
Since our last entry (April 2004) the list has been through many changes. The markets generally have been good; especially the commodity markets and some currency markets (Canadian $ in particular).
The selection algorithm is struggling to identify attractive issues in the US markets at this time. We currently only feature 3 stocks.
NVR is a repeat 'offender' and was first identified back in 2001 at ~$200. It currently trades at $765 (has been as high as $800) and still sports a reasonable PE of 11.60. They are home builders which means they could potentially hurt significantly in a rising rate/RE bubble pop environment but they have consistently increased earnings and aggressively buy back their shares.
MPX and VIVO are the two other stocks. MPX was recently added and is in the marine business. They have recently traded to a new 52-week high. VIVO is a healthcare issue which has been in the list for the past few months. They have increased their earnings at an average rate of 20% over the past 5 years.
The general markets seem to be re-testing recent highs but it is our opinion that the markets will likely head sideways to down over the next 12 months. Valuations are rich and bear market cycles in cyclical bears typically last 4 years. We are nearly 2 years into this 'bull' run; it is therefore reasonable for us to assume that the markets will re-test 2002 lows sometime in 2006. We must always be mindful of the fact that the last two bear runs (1982 and 1951) had markets sporting an average PE ratio of 6. Nobody thought 'stocks' were worth the paper they were issued on and certainly few were discussing stocks at cocktail parties.
It is very much worth noting that this is a stock picker's market as we expect the markets to show negligible (if any) gains over the next 5-10 years. There will of course be excellent companies introducing new products and concepts that will ultimately lead to profitable entities. The performance of the list has been choppy over the past 3 months and we expect this to continue as the list is poorly populated. We would of course not suggest anyone have a portfolio comprising 3 stocks but we are going to keep the list running and presenting its performance.
On the other hand, we have seen our TSX system's returns positively diverge from the indices over the past 6 months. For more TSX system specific discussion, please visit the Canadian TSX stock selection system.
Wed Apr 28 20:02:11 PDT 2004
Significant drops in the equity markets today... with an advance/decline ratio of 0.25 for the Nasdaq. Triggers appear to be an accounting probe at Nortel (NT) and subsequent firing of top level staff, signs that China is getting set to slow its rapidly expanding economy, and general apprehension given a rise in interest rates seems imminent. Our US small cap growth stock system did fairly well, mildly outperforming the Nasdaq, RUT2000 but underperforming the S&P500... we are now seeing that over virtually ALL time horizons, the screen has done better which is pleasing. It is interesting to note that the S&P/TSX (major Canadian index) fell over 3% on the heels of a 28% drop in NT... highlighting how NT's volatility can significantly impact index returns... our equivalent Candian Small Cap screen fell only 0.82% and recent performance (~3months) has exhibited a marked positive divergence from the index returns. HELE and AVD remain near 52-week highs and have held on nicely during recent turmoil; look for these two issues to break higher if the general market can sustain a rally to the upside. The US Dollar jumped a full 2.5 cents compared to the Candian dollar... this along with comments out of China led to decreases in commodity prices and commodity related stocks.
Tue Apr 20 13:26:48 PDT 2004
Owl's nest group dropped across the board with a -10% notable drop seen on PETD with 50% above avg normal volume. A confusing move given the stock opened at a 52-week high... but obviously did not hold the level. On the positive side, a relatively new stock to the Owl's Nest, AVD, was higher on 5 times avg volume bucking the negative trend of the general markets. As my colleague mentioned, we are beginning to see weakness in interest rate sensitive stocks and predict this will continue. Comments by Greenspan today indicated inflationary pressures are present which provides more fuel for an interest rate increase.
Tue Apr 20 3:25:57 PDT 2004
The markets have been a bit rough for this system lately. I expect the system to adapt and shift to whatever stocks the market favours. I'm somewhat concerned about the interest rate sensitive stocks that are currently held and I wouldn't be surprised it these fade out when interest rates begin their inevitable accent.