How you can make money using REFS On-line

In his best selling book the Zulu Principle Jim Slater outlines a series of quantitative criteria for selecting growth stocks to help you achieve out-performance on the stock market.

In essence, Jim proposes that companies should be in a rapid earnings growth phase, be performing well in the market and should represent good value (growth at a reasonable price).

What makes REFS Online so valuable is that it is so straightforward to replicate Jim’s Zulu Principle investment approach using it. What is more, REFS On-line also keeps you bang up to date with the most significant company events of the day because it is updated each night.

Of course, the proof of the pudding is always in the eating. In other words, does the Zulu Principle approach really produce market beating results?

To find out, REFS On-line has been used by stockbrokers to verify this through back testing.

In fact, Irish stockbrokers Merrion back-tested a Zulu Principle portfolio of stocks over the nine and a half year period from October 1994 and reviewed it every six months.In October 2004 they concluded that a Zulu Principle portfolio could have delivered compound per annum returns of 24.5% (excluding costs), compared to just 4.4% compound per annum returns for the FTSE All Share index - a massive out-performance of over 20% per annum for the best part of a decade.

As part of the exercise Merrion held ten stocks for essential diversification with forecast earnings growth of greater than 20%, a forecast PER of less than 20, a PEG ratio of less than 0.75 and positive relative strength (i.e. shares which had beaten the market ) over the past year.

When back tested, why did the Zulu Principle portfolio outperform the market by such a big margin?

Some of the reasons appear to be that firstly, because the selected portfolios were reviewed every six months there was a mechanism in place to cut losses and run winners. Secondly, high earnings growth of over 20% per annum for the selected portfolio of Zulu Principle stocks offered significantly higher earnings growth than the overall market. Thirdly, a PEG is only awarded to companies in REFS with four years of earnings growth (with a minimum of two being historic) which provides a degree of reliability. Fourthly, buying a share with a PE ratio (PER) below its sustainable earnings growth rate offers a margin of safety. Finally, relative strength has been found to be one of the strongest indicators of out-performance (What Works on Wall Street by James O’Shaughnessy) suggesting that the market has already begun a re-rating process.

So what are the buttons that I need to press to set up my sample Zulu Principle portfolio on-line?

You can create your search using REFS Online by following the simple steps below. Afterwards it can then be selected and run as many times as you like simply by clicking on the Table (A to Z) pull down menu, even on a daily basis if you so wish.

1. At the REFS Online Home Page click on ‘Refs login’
2. At the login screen type in your User Name and password in the appropriate boxes and click on Enter.
3. At the next screen, click on ‘Setup Tables’. A dialog box will appear, entitled ‘Table Setup’.
4. Click on the ‘New’ button and a second dialog box will appear, entitled ‘New Table Name’. Overtype the text ‘New Table’ with the name of your new table e.g. ‘Zulu Search’ and click on ‘Accept’.
5. The dialog box will now contain a new, mostly blank table. You will see that ‘Zulu Search’ is correctly entered next to ‘Table Name’ at the top of the dialog box. You can ignore the two fields beneath this, entitled ‘View to Use’ and ‘Order by.’
6. In first row of table, underneath the column – entitled ‘Field Name’ - click on the down arrow immediately to the right of ‘None’. Scroll down and click on ‘PEG’.
7. Move to the second column, entitled ‘Logic,’ and again click on the down arrow immediately to the right of ‘None’. Click on the arithmetical operator ‘less than’ (symbol: <).
8. Moving now to the third column, entitled ‘Value,’ overtype the box with the value 0 by typing in the correct value, in this case: 0.75
9. Next, repeat this process in the next row below the one that you have just entered values for, under each column heading, in order to enter in the other search values that are shown in table below

11. Field name	Logic	Value
    PEG	<	0.75
    PER	<	20
    EPS Growth Rate %	>	20
    1 Year relative Str	>	0
    3 Month relative Str	>	0
    Market Capitalisation	>	20

    
    
12. Now you should have a table of values looking similar to the one above. Next, you must click on the ‘Save’ button located near the top of the dialog box and then click on the ‘Quit’ button. You will be returned to the first main screen after logging in with ‘Table A to Z’ in the top left hand corner.
13. To run your sample Zulu Principle search simply click on ‘A to Z’ to pull down the list of available on-line tables. At the bottom of the list you should see your newly created table entitled ‘Zulu Search’. To run this, simply click on it. Your list of Zulu Principle stocks should appear to the right of this under the header ‘Company Name’, along with other columns of values.

Warren Buffett once said that ‘what is needed for successful investing is a sound investment framework for making decisions and an ability to keep your emotions from corroding that framework’. REFS Online gives you the ability to do this, which is what, we believe, makes it such an invaluable investment tool.