Money Manager Tim Melvin, who gave us the excellent Low Price Value Line System just chimed in with another VL based investment strategy that has a remarkable track record. Buy all stocks ranked 1 or 2 for Timeliness by Value Line that are trading at less than or equal to 1.3 times their book value. The current list of stocks that qualify can be found here.

The portfolio need’s to be rebalanced on a regular basis, and Tim suggests rebalancing monthly. Following such a strategy would have returned over 20% per year for the past 20 years. I asked Tim why he chose a multiple of 1.3 to use, and his response was “you could just take the stocks that trade below book value, but you don’t get that many chances to buy. Book value acts as a floor that many stocks won’t trade below.” He further added that there are a lot of stocks that are ranked 1 or 2 and trade at around 1.5x book value, so a market selloff can give us a lot of new buys at the next rebalancing. Finally, he suggested committing 5% of equity alloted to the strategy to each stock it trigger’s a buy on.

Omid Malekan