Wayne Thorp is a Vice President and financial analyst with the American Association of Individual Investors. He is an expert on quantitative investing and has played a significant role in the development of the AAII stock screening and model portfolio products. He has also earned the Chartered Financial Analyst designation from the CFA Insitute and is a graduate of DePaul University.
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Validea used the investment strategy outlined in the paper How to Profit From Revisions in Analysts' Earnings Estimates written by Wayne Thorp to create our Earnings Revision Investor portfolio.
Studies have shown that investors tend to underestimate the magnitude of good news when companies are performing well. As a result, the initial reaction to positive news tends to persist for a period of time as more and more investors recognize it. This strategy seeks to take advantage of that phenomenon by selecting companies that have seen upward revisions in their earnings estimates. It looks for companies with positive revisions for both the current year and the next fiscal year and eliminates any companies with negative revisions. It also looks for sufficient analyst coverage to ensure the revisions have statistical significance to them.