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Executive Summary September 17, 2010

The Economy

Several positive pieces of economic data have surfaced over the past two weeks, offering signs that the economy is trudging forward -- and not heading into the "double-dip" recession so many have feared.

Among the positive signs were the latest retail sales figures. Sales rose by 0.4% in August, the Commerce Department reported, the biggest gain in five months. Part of that increase may have been spurred by tax-free days that many states held, but nonetheless the rise was welcome news, given that consumer spending makes up about 70% of the U.S. economy.

Industrial production, meanwhile, increased again in August, rising by 0.2%, according to the Federal Reserve. It was the 13th time in 14 months that production rose. The New York Federal Reserve also reported that its bellwether manufacturing index gained in September. It was the slowest rate of increase in over a year, the data showed, but the sector remained in expansion territory, a good sign -- as was data showing that employment conditions in the region are improving. The Philadelphia Fed's economic index, which covers Delaware and parts of Pennsylvania and New Jersey, showed contraction in the manufacturing sector for the second straight month in September, however. But the contraction was much smaller than it was the previous month, with the index at -0.7, just below the 0 score that serves as the break point between expansion and contraction.

That brings us to the broader unemployment picture, which remains troublesome. The latest Labor Department report showed that the unemployment rate rose slightly in August, to 9.6%. But there were some silver linings. For one, the private sector actually added 67,000 jobs in the month -- the unemployment rate rose because more than 100,000 temporary Census jobs ended, and because more than 500,0000 workers who'd left the labor market started looking for jobs again.

In addition, new claims for unemployment have now dropped for two straight weeks, falling a total of almost 6% in that time, according to the Labor Department. Over the past month, they've fallen almost 11%. While the labor market remains far from healthy, that's certainly a good sign.

Globally, one factor to keep an eye on is how Japan's yen intervention will play out. Japanese authorities on Wednesday sold a reported $12 billion worth of yen, buying U.S. dollars in an attempt to stop the yen's recent climb against the dollar. As a major exporter, a yen surge posed problems to Japan's economy. Whether Japan continues to intervene, and how its intervention will impact the U.S., remains to be seen.

All in all, the markets took the relatively upbeat economic news well over the fortnight. The S&P returned 3.2%, while the Hot List returned 3.6%. For the year, the portfolio has now returned -3.7% vs. 0.9% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 132.1% vs. the S&P's 12.4% gain.

Discipline Amid Turmoil

It's been a good couple weeks for stocks, with the past fortnight continuing the bumpy trend we've seen in recent months -- that is, two or three good weeks being followed by two or three bad weeks.

Investors' emotions appear to have been pushed and pulled amid the volatility, which is evident by looking at the American Association of Individual Investors' weekly sentiment survey. In the week ending July 8, only 20.9% of survey respondents said they were bullish on the market over the next six months; 57.1% said they were bearish. Those figures were well out of line with the long-term bullish/bearish averages of 39%/30%.

By the end of the month, however, the bulls were back on top. The survey for the week ending July 29 showed 40.0% of respondents to be bullish, with 33.3% bearish.

Over the next four weeks, however, sentiment tumbled; in the week ending Aug. 26, only 20.7% of respondents were bullish, while nearly 50% were bearish.

Over the last three weeks, however, the pendulum has swung back -- strongly -- to the bullish side. For the most recent week (ending Sept. 15), 50.9% of respondents were bullish; just 24.3% were bearish. That's the highest bullish reading in more than a year, and only the third week since May 2008 that the figure has been 50% or higher.

The swings we're seeing in sentiment aren't surprising, given the unusually wide range of possible fates many investors are seeing for the market. As Wells Capital Management's James Paulsen recently put it, "At this point in the cycle -- one year into recovery or so -- in the past, we'd be debating whether this recovery's going to grow at 3% or 1.5%. And there's a little bit of that debate going on today. But I think the bigger debate in investors' minds is, are we going to grow at 3%, or are we going to have a depression?"

Indeed, for every strategists and pundit who says a double-dip recession -- or depression -- is coming and will slam stocks, there seems to be another saying that stocks, or at least certain areas of the market, are trading at historically cheap valuations and are a screaming buy. The crisis of 2008 still fresh in their minds, average investors seem to be caught in the middle, hanging even more intently than usual on the next big economic report. Positive reports are seen as a big sigh of relief that the economy isn't going to head back down into a double-dip recession or a depression; negative reports, on the other hand, play into the double-dip/depression fears.

The numbers seem to bear out this landscape of sentiment extremes. Historically, the average percentage of AAII survey respondents who've said they are "neutral" on stocks over the next six months has been 31%. In the past 25 weeks, however, the percentage of investors reporting they were neutral has been below that average 21 times, and above it just 4 times.

Given all of the issues the economy is working through -- and given that the '08 crisis and Great Recession are still so fresh in people's minds, I wouldn't be surprised to see sentiment, and the market, continue to swing back and forth in the short term. And in my opinion, the best thing to do in times like these is not to try to time the shifts in sentiment and market swings; the market and investors are too fickle in the short term to try to predict their moves -- and a good deal of data from companies like Dalbar, Inc. and Morningstar shows just how poorly individual investors fare when they try to jump in and out of stocks.

Instead, I think the emotional climate makes it particularly important to stay disciplined, and stick to a long-term strategy. Allowing yourself to get caught up in the big sentiment shifts can be very dangerous, and more often than not will lead you to buy high and sell low.

Staying disciplined through difficult and volatile times is, in fact, something that the majority of the gurus who inspired my strategies talked about extensively. Given all of the emotions swirling around the market right now, I thought it would be a good time to review what some of these highly successful investors had to say about discipline. Here's a sampling:

Warren Buffett: "Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."

"To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding the framework." -- The Intelligent Investor (Fourth Edition, Preface)

Peter Lynch: "The real key to making money in stocks is not to get scared out of them." -- Money magazine

"If you're in the market, you have to know there's going to be declines. [Big declines are] gonna happen. When they're gonna start, no one knows. If you're not ready for that, you shouldn't be in the stock market. I mean stomach is the key organ here. It's not the brain. Do you have the stomach for these kind of declines? Time is on your side in the stock market. It's on your side. And when stocks go down, if you've got the money, you don't worry about it and you're putting more in, you shouldn't worry about it. You should worry what are stocks going to be 10 years from now, 20 years from now, 30 years from now." -- PBS Television

James O'Shaughnessy: "We are a bundle of inconsistencies, and while that may make us interesting, it plays havoc with our ability to invest our money successfully. Disciplined implementation of active strategies is the key to performance." -- What Works of Wall Street

"[Making money in stocks] requires the ability to consistently, patiently, and slavishly stick with a strategy, even when it's performing poorly relative to other methods." -- What Works on Wall Street

"What always works on Wall Street is strict adherence to underlying strategies that have proven themselves under a variety of market environments -- Reuters (2007)

Benjamin Graham: On speculating, or trying to time the market. "The people who persist in trying it are either (a) unintelligent, or (b) willing to lose money for the fun of the game, or (c) gifted with some uncommon and incommunicable talent. In any case, they are not investors." -- The Intelligent Investor

"Successful investment may become substantially a matter of techniques and criteria that are learnable, rather than the product of unique and incommunicable mental powers. The intelligence here presupposed is a trait more of the character than of the brain." -- The Intelligent Investor

John Neff: "My investment style can give investors a lucrative edge over the long haul. But if you can't roll with the hits, or you're in too big a hurry, you might as well keep your money in a mattress." -- John Neff on Investing

Joel Greenblatt: "The magic formula works -- long-term annual returns of double, or in some cases almost triple, the returns of the market averages -- only those good returns can get pretty lumpy. Over shorter periods, it may work or it may not. When it comes to the magic formula, 'shorter' periods can often mean years, not days or months." -- The Little Book that Beats the Market

"Most investors won't (or can't) stick with a strategy that hasn't worked for several years in a row. [But] for the magic formula to work for you, you must believe that it will work and maintain a long-term investment horizon." The Little Book that Beats the Market

Money Where Their Mouths Are

What's important to remember is that these gurus didn't just pay lip service to the notion of staying disciplined in tough or volatile times. Many have actively managed money through some of the most trying periods in U.S. history. Graham, for example, started his own money management firm in 1926 -- just three years before the market crash of 1929. Neff took over the Windsor Fund in 1964, just two years before a decade-and-a-half stretch began in which the broader market was basically flat, and four bear markets occurred. Lynch was just a few years into his career as a fund manager when the double-dip recession and bear market of the early 1980s hit.

Through those rough periods, the gurus appear to have stuck to their guns. Consider some of these figures: In the bear market of 1973-74, Neff's fund was hit hard, losing 25% in '73 and 16.8% in '74. But in 1975, when the S&P 500 bounced back 37.2% Neff's Windsor Fund returned 54.5%; in 1976, the fund returned another 46.4%, almost doubling the S&P's 23.6% return. Buffett was hit even harder; Berkshire Hathaway's stock fell 10.1% in '73, 43.7% in '74, and 5.0% in '75. But it then roared back, gaining 134.2% in '76 and 55.1% in 1977 (a negative year for the S&P).

Lynch, meanwhile, was hit hard by the 1980-82 bear, with his Magellan Fund losing 22.6% -- more than four times the S&P's loss -- in 1981, and also being in the red in 1982. But in 1983, Magellan surged back, gaining 82.8%. Buffett's firm's shares also more than tripled the S&P that year.

When looking at other gurus' post-bear track records, a similar pattern shows up. During downturns, many tend to take their hits; but after the downturns, they tend to produce exceptional outperformance. That would seem to indicate that, when many others are fleeing stocks, the gurus are bargain-hunting, picking up beaten-down shares, many of which take off once things turn around.

Discipline also has paid off for the gurus in times of over-optimism. While many investors ignored fundamentals and jumped on overhyped tech stocks in the late 1990s, Buffett and another guru I base a strategy on, David Dreman, steered clear -- and they took a lot of heat for it in the press as tech stocks surged. But when the tech bubble burst, they were proved right, and ended up far ahead of the market when all was said and done.

Whether in good times or bad, the gurus -- unlike most investors -- tend to stay disciplined, focusing on the facts and numbers -- namely, the figures on a company's balance sheet and income statement and in their fundamentals. They don't get swept up in the crowd mentality, and don't let emotion rule their decision-making. That's a big part of how they've been so successful over the years. Investors would be wise to take a page from their books amid the current market volatility.

Editor-in-Chief: John Reese

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Guru Spotlight: Joseph Piotroski

If you haven't heard of Joseph Piotroski, you're not alone. He's probably the least well-known of the investment "gurus" who inspired my strategies. Actually, he's not even a professional investor, but instead an accountant and college professor.

In 2000, however, Piotroski showed that you don't need to be a smooth-talking Wall Street hot-shot to make it big in the market. While teaching at the University of Chicago, he authored a research paper that showed how assessing stocks with simple accounting-based methods could produce excellent returns over the long haul. No fancy formulas, no insider knowledge -- just a straightforward assessment of a company's balance sheet.

His study turned quite a few heads on Wall Street. It focused on companies that had high book/market ratios -- i.e. the type of unpopular stocks whose book values (total assets minus total liabilities) were high compared to the value investors ascribed to them (their share price multiplied by their number of shares).

Quite often, such firms have low book/market ratios because they are in financial distress, and investors wisely stay away from them. On certain occasions, however, high book/market firms may be good companies that are being overlooked by investors for one reason or another. These firms can be great investment opportunities, because their stock prices will likely jump once Wall Street realizes it's been shunning a winner.

Through his research, Piotroski developed a methodology to separate the solid but overlooked high book/market firms from high book/market ratio firms that were in financial distress. He found that this method, which included a number of balance-sheet-based criteria, increased the return of a high book/market investor's portfolio by at least 7.5 percent annually. In addition, he found that buying the high book/market firms that passed his strategy and shorting those that didn't would have produced an impressive 23 percent average annual return from 1976 and 1996.

Since I started tracking it in late February 2004, a 10-stock portfolio picked using my Piotroski-based model has outperformed the market, though with some big ups and downs. Over its first four-and-a-half years or so, it was more than five times ahead of the S&P 500. It was hit hard -- like the rest of the market -- in 2008, however, falling more than 37%, and it didn't bounce back much in 2009, gaining just 6.8%. This year, however, it's up 18.1%, making it my best performer year-to-date. That means it's up 35.2% since inception, a period in which the S&P 500 has lost 2.2%.

Let's take a look at how Piotroski's approach, and the model I base off of it, work.

Diving into The Balance Sheet

Piotroski wasn't the first to study high book/market stocks. But his research took things a step further than many past studies. He noted that the majority of high book/market stocks ended up being losers, and that the success of high book/market portfolios was usually dependent on the big gains of a small number of winners. Much as low price/earnings ratio investors like John Neff used a variety of tests to make sure low P/E stocks weren't rightfully being overlooked because of poor financials, Piotroski sought to separate the high book/market winners from the high book/market losers.

The first step in this approach is, of course, to find high book/market ratio stocks. In his study, Piotroski focused on the stocks whose book/market ratios were in the top 20 percent of the market, so that's the figure I use.

That's the easy part. The harder part is determining whether investors are avoiding a low-B/M stock because it is in financial trouble, or whether the company is a solid one that is simply being overlooked. The Piotroski-based model looks at a variety of factors to determine this, including return on assets and cash flow from operations, both of which should be positive.

Piotroski also thought that good companies had cash from operations that was greater than net income. Such companies are making money because of their business -- not because of accounting changes, lawsuits, or other one-time gains.

Several of Piotroski' other financial criteria don't necessarily look for fundamental excellence, but instead for improvement. This makes a lot of sense; a company whose return on assets had declined from 10 percent to 1 percent and whose cash flow from operations had dwindled from $10 million to $10,000 would pass the above ROA and cash flow tests, for example, but it certainly wouldn't be the type of strong performer Piotroski was targeting. Looking at how a company's fundamentals had been changing allowed him to not only get an idea of the firm's financial position, but also of whether that position was improving or declining.

Among the other "change" criteria Piotroski examined were the long-term debt-asset ratio, which he wanted to be declining; the current ratio (current assets/current liabilities), which he wanted to be increasing; gross margin, which should be rising; and asset turnover, which measures productivity by comparing how much sales a company is making in relation to the amount of assets it owns (That should be increasing).

As you can see, the Piotroski-based approach is a stringent one. Here are the ten stocks that rate high enough to make it into its 10-stock portfolio:

Education Management Corp. (EDMC)
Companhia de Saneamento Basico (SBS)
Telecom Italia S.P.A. (TI)
Chiquita Brands International (CQB)
PHH Corporation (PHH)
Dillard's, Inc. (DDS)
Echostar Corporation (SATS)
American National Insurance Company (ANAT)
Dycom Industries (DY)

Think Small -- And Boring

One final note on the Piotroski-based strategy: It usually ends up focusing on small stocks. Piotroski found that smaller high book/market firms were more likely to produce high returns than their larger counterparts, because small stocks are more likely to fly under the radar of analysts and investors. That means you are more likely to uncover winners using fundamental analysis of these smaller, less-followed stocks. For the same reason, the stocks that my Piotroski-based model usually chooses tend to be from boring industries or make boring products. But while they're not the most flashy firms, they're quite often the type of stocks that can pay excellent returns over the long haul.

News about Validea Hot List Stocks

Ross Stores, Inc. (ROST): Ross' same-store sales rose 5% in August over the year-ago period, Bloomberg reported. The results beat analysts' forecasts.

GameStop Corp. (GME): On Sept. 15, GameStop announced that its board of directors has authorized $500 million for a share and debt repurchase program. The firm said $300 million will be used in the company's share repurchase plan and $200 million will be used to retire the company's senior notes. Shares were up almost 4% in mid-afternoon trading on Thursday.

The Next Issue

In two weeks, we will publish another issue of the Hot List, at which time we will rebalance the portfolio. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio

Detailed Stock Analysis

Disclaimer: The analysis is from Validea's selection and interpretation of content from the guru's book or published writings, and is not from nor endorsed by the guru. See Full Disclaimer

CAAS   |   ARO   |   HS   |   WDC   |   CSH   |   JOSB   |   DLTR   |   SNY   |   GME   |   ROST   |  

China Automotive Systems, Inc. (China Automotive) is a holding company and has no significant business operations or assets other than its interest in Great Genesis Holdings Limited (Genesis). Through Genesis, the Company manufactures power steering systems and other component parts for automobiles. All operations are conducted through eight Sino-foreign joint ventures in China and a wholly owned subsidiary in the United States. The Company has business relations with more than 60 vehicle manufacturers, including FAW Group and Dongfeng Auto Group, automobile manufacturers in China; Shenyang Brilliance Jinbei Co., Ltd., light vehicle manufacturer in China; Chery Automobile Co., Ltd, state-owned car manufacturer in China, and Xi'an BYD Auto Co., Ltd and Zhejiang Geely Automobile Co., Ltd., car manufacturers.

Aeropostale, Inc. is a mall-based specialty retailer of casual apparel and accessories. The Company designs, markets and sells its own brand of merchandise principally targeting 14 to 17 year-old young women and young men. The Company also sells Aropostale merchandise through its e-commerce Website, www.aeropostale.com. During the fiscal year ended January 30, 2010 (fiscal 2009), the Company launched P.S. from Aeropostale, which offers casual clothing and accessories focused on elementary school children between the ages of 7 and 12. During fiscal 2009, the Company completed the closure of its 14 store Jimmy'Z concept. Jimmy'Z Surf Co., Inc., a wholly owned subsidiary of Aeropostale, Inc., was a contemporary lifestyle brand targeting young women and men aged 18 to 25.

HealthSpring, Inc. (HealthSpring) is a managed care organization with a primary focus on Medicare, the federal government-sponsored health insurance program for United States citizens aged 65 and older, qualifying disabled persons and persons suffering from end-stage renal disease. As of December 31, 2009, the Company operated coordinated care Medicare Advantage plans in Alabama, Florida, Illinois, Mississippi, Tennessee, and Texas. As of January 1, 2010, it also commenced operations of Medicare Advantage plans in three counties in Northern Georgia. As of December 31, 2009, the Company's Medicare Advantage plans had over 189,000 members. The Company also offers prescription drug benefits in accordance with Medicare Part D to its Medicare Advantage plan members, in addition to providing other medical benefits (MA-PD) plans. It also offers prescription drug benefits nationally on a stand-alone basis in accordance with Medicare Part D (PDP).

Western Digital Corporation (WD) designs, develops, manufactures and sells hard drives. It sells its products worldwide to original equipment manufacturers (OEMs) and original design manufacturers (ODMs) for use in computer systems, subsystems or consumer electronics (CE) devices, and to distributors, resellers and retailers. Its hard drives are used in desktop computers, notebook computers, and enterprise applications such as servers, workstations, network attached storage, storage area networks and video surveillance equipment. Its hard drives are used in CE applications, such as digital video recorders (DVRs), and satellite and cable set-top boxes (STBs). It also sells its hard drives as stand-alone storage products by integrating them into finished enclosures, embedding application software and offering the products as WD-branded external storage appliances for personal data backup and portable or expanded storage of digital music, video and other digital data.

Cash America International, Inc. provides specialty financial services to individuals through its Company-owned and franchised lending locations, and check cashing centers and via the Internet. These services include secured non-recourse loans (pawn loans), short-term unsecured cash advances and related financial services. It operates in three segments. As of December 31, 2009, the pawn lending segment offered pawn loans through 676 total pawn lending locations operating under the names of Cash America Pawn, SuperPawn and Prenda Facil. As of December 31, 2009, the cash advance operating segment included 246 cash advance storefront locations in six states in the United States operating under the names Cash America Payday Advance and Cashland. As of December 31, 2009, the check cashing operating segment consisted of 120 unconsolidated franchised and six consolidated Company-owned check cashing locations operating in 16 states in the United States under the name Mr. Payroll.

Jos. A. Bank Clothiers, Inc. (Jos. A. Bank) is a designer, manufacturer, retailer and direct marketer (through stores, catalog and Internet) of men's tailored and casual clothing and accessories. The Company sells substantially all of its products exclusively under the Jos. A. Bank label through its 473 retail stores (as of January 30, 2010, which includes seven outlet stores and 13 franchise stores) located throughout 42 states and the District of Columbia in the United States, as well as through the Company's nationwide catalog and Internet (www.josbank.com) operations. Jos. A. Bank operates through two segments: Stores and Direct Marketing. The Company's Stores segment consists of its 453 Full-line Stores. The Company opened 14 stores (and closed one store) during the fiscal year ended January 30, 2010 (fiscal 2009). The Company's Direct Marketing segment consists of its Internet and catalog channels.

Dollar Tree, Inc. (Dollar Tree) is an operator of discount variety stores offering merchandise at the fixed price of one dollar. At January 30, 2010, the Company operated 3,806 discount variety retail stores. Approximately 3,650 of these stores sell substantially all items for one dollar or less. The remaining stores, operating as Deal$, sell items for one dollar or less but also sell items for more than one dollar. Dollar Tree's stores operate under the names of Dollar Tree, Deal$ and Dollar Bills.

Sanofi-Aventis is a pharmaceutical group engaged in the research, development, manufacture and marketing of healthcare products. The Company's business includes two main activities: pharmaceuticals and human vaccines through sanofi pasteur. The Company is also present in animal health products through Merial Limited (Merial). In its pharmaceutical activity, the Company specializes in six therapeutic areas: diabetes, oncology, thrombosis and cardiovascular, central nervous system (CNS), and internal medicine. The global portfolio of sanofi-aventis also consists of a range of other pharmaceutical products in Consumer Health Care (CHC) and other prescription drugs, including generics. It offers vaccines in five areas: pediatric combination vaccines, influenza vaccines, adult and adolescent booster vaccines, meningitis vaccines and travel and endemic vaccines.

GameStop Corp. (GameStop) is a retailer of video game products and personal computer (PC) entertainment software. The Company sells new and used video game hardware, video game software and accessories, as well as PC entertainment software, and related accessories and other merchandise. As of January 30, 2010, the Company operated 6,450 stores in the United States, Australia, Canada and Europe, primarily under the names GameStop and EB Games. GameStop also operates the electronic commerce Website www.gamestop.com and publish Game Informer, a multi-platform video game magazine in the United States based on circulation, with approximately 4 million subscribers. During the fiscal year ended January 30, 2010 (fiscal 2009), GameStop operated its business in four segments: United States, Canada, Australia and Europe.

Ross Stores, Inc. operates two chains of off-price retail apparel and home accessories stores. As of January 30, 2010, the Company operated a total of 1,005 stores, of which 953 were Ross Dress for Less (Ross) locations in 27 states and Guam and 52 were dd's DISCOUNTS stores in four states. Both chains target women and men between the ages of 18 and 54. Ross target customers are primarily from middle income households, while the dd's DISCOUNTS target customer is from more moderate income households. Ross offers name brand and designer apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20% to 60% off department and specialty store regular prices. dd's DISCOUNTS features a moderately-priced assortment of name brand apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20% to 70% off moderate department and discount store regular prices.

Watch List

The Watch List contains the highest scoring stocks according to our guru consensus system that are not currently in the Hot List portfolio. We provide this list both for informational purposes and for investors who are not comfortable with a portfolio of ten stocks.


The names of individuals (i.e., the 'gurus') appearing in this report are for identification purposes of his methodology only, as derived by Validea.com from published sources, and are not intended to suggest or imply any affiliation with or endorsement or even agreement with this report personally by such gurus, or any knowledge or approval by such persons of the content of this report. All trademarks, service marks and tradenames appearing in this report are the property of their respective owners, and are likewise used for identification purposes only.

Validea is not registered as a securities broker-dealer or investment advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Validea is not responsible for trades executed by users of this site based on the information included herein. The information presented on this website does not represent a recommendation to buy or sell stocks or any financial instrument nor is it intended as an endorsement of any security or investment. The information on this website is generic by nature and is not personalized to the specific situation of any individual. The user therefore bears complete responsibility for their own investment research and should seek the advice of a qualified investment professional prior to making any investment decisions.

Performance results are based on model portfolios and do not reflect actual trading. Actual performance will vary based on a variety of factors, including market conditions and trading costs. Past performance is not necessarily indicative of future results. Individual stocks mentioned throughout this web site may be holdings in the managed portfolios of Validea Capital Management, a separate asset management firm founded by Validea.com founder John Reese. Validea Capital Management, which is a separate legal entity and an SEC registered investment advisory firm, uses, in part, the strategies on the web site to select stocks for its clients.