Performance Disclosure

The performance calculations for the were produced through back-testing and consist of the total return (price changes + dividends) of an equal weighted portfolio. Returns are calculated on a specified periodic basis (most often one, four or twelve weeks and assume no transaction costs. The portfolio is rebalanced at the start of each new period. Returns are stated as either annualized or compounded returns.

Stock trading/investing involves risk and you can lose some or all of your investment. Hypothetical or back-tested results may not always be duplicated in the real world. Back-testing can at times produce an unintended look-ahead bias. Results can also at times be over or understated due to the exclusion of inactive companies. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading, not the least of which is the ability to withstand losses or to adhere to a particular trading strategy in spite of trading losses. These are material points which can also adversely affect actual trading results. The back-tested results prepared consisted of only active companies.

Potential Limitations in Back-testing

There are four types of biases that can distort your back-test results.

1. Look ahead bias – this occurs when the stocks selected on a rank date use financial information that was not available on that rank date. For example: if a company reports its financials for the quarter ending Mar 2006 on Apr 20, 2006, the rank that is created at the end of the March 2006 quarter should not use the financials for that quarter, since they were not available at the end of the quarter.

2. Restatement bias – this occurs when a company restates its historical financials. For example: if a company reports its 3/16 results and restates its Dec 2015 results; a rank done as of end of Dec 2015 should use the originally reported financials for Dec 2015, not the restated financials for Dec 2015 which were not available until March 2016.

3. Survivor bias – this occurs when stocks that have been delisted or acquired are not included in the back-test results. Depending on your strategy, the impact of survivor bias on your back-test may be significant.

4. Split bias – this can occur if your screen uses price as a qualifier, e.g., Price > $5.00. The database is split adjusted. So, using the example above, if the company had a stock split between the screened date and the date of the back-test, the company may not be included in the back-test results if the split adjustment caused the historical price at the date of the back-test to be below that $5.00 threshold. Typically, stock splits occur at higher prices.