Introducing the MVP Rating System

MVP Overview

MVP is an acronym for Momentum Value and Profitability - which were found to be the three most important factors in driving stock returns. Through intensive study and historical back-testing, CSS Analytics with the help of several PhDs at RiskLabs at the University of Toronto, developed the most sophisticated and robust stock ranking system to date.

The MVP Rating System is a model which analyze stocks based on certain fundamental and technical factors in order to rate them on a 9-point scale, with 9 being the highest score and 1 being the lowest score. The key feature of the MVP Rating System is that it allows investors to identify the stocks that have the highest probability of either outperforming or underperforming the market and everything in between. Back-tested since 1966, the author, CSS Analytics, reports that top-rated stocks (scoring 9), generated a 44% annualized return since 1966 while bottom-rated stocks (scoring 1) produced a -4% annualized return during the same period. Armed with this information, investors can build a winning portfolio. Most importantly, the system works in all market conditions, performing well in both bull and bear markets. The system has been tested extensively using rigorous academic standards to ensure its integrity and portfolio managers have had great success applying it in the real world. In years past, such a system was only available to institutions. Not anymore! CSS Analytics has allowed The Bull Runners to provide its members with these tools.
When you download the MVP Rating System report you will receive the Top 30 MVP Stocks, the Top 30 MVP Large Cap Stocks and the MVP Focus List. Detailed information on each of these tools and how to use them is provided at the end of this article as well as with the report itself.
How the system works

The MVP Rating System is based on CSS Analytics’ proprietary, quantitative model which rates stocks on a 9-point scale, with 9 being the highest score and 1 being the lowest score. A rating of 9 represents the stocks that have the highest probability of outperforming the market, while a rating of 1 represents the stocks that will most likely underperform the market. Chart 1 below indicates the distribution of stocks that fall within each rating category.

Chart 1

As you would expect, the majority of stocks fall within the middle range, while the top and bottom rated stocks fall at both extremes of the distribution.

Separate the Wining Stocks

Beating the market is all about separating the winners from the losers. That's what the MVP Rating System was designed to do. The results are truly remarkable. The MVP 9-rated stocks generated an amazing 44% annualized return since 1966, while the MVP 1-rated stocks produced a -4% annualized return over the same period. You will notice the linear gradation of the performance ratings in Chart 2 below. Such results accurately reflect what you should expect from a good rating system. We have not been able to find another system that has demonstrated such consistent performance over such a long period of time, dating back as far as 1966.

Lets look at the performance

Let’s say you invested $10,000 in the MVP 9-rated stocks in 1995, you would have an amazing $588,948 only 10 years later. That's a 52% annualized return! That same $10,000 invested in the S&P 500 would yield $26,338 over the same period. That's only an 11% annualized return! See Chart 3below for details.

Chart 3

Compare our results to other top rating systems

A great benchmark for the MVP Rating System is Joel Greenblatt's "Magic Formula". Greenblatt is one of the all time great investors. He is considered a legend in hedge fund circles and is the author of best-selling book, The Little Book That Beats the Market. Greenblatt's book focuses on developing a magic formula to rank stocks. In the chart below, we converted our MVP Rating System into decile groups and compared them to Greenblatt's "Magic Formula" over the period from 1988-2004. Just like Greenblatt's "Magic Formula", our system works well for both large and small cap stocks and applies the basic principle of buying good companies at bargain prices. However, you can see in Table 1 below that the MVP Rating System does a better job of differentiating the winners from the losers.

We also compared the MVP 9-rated stocks to other top systems including O'Shaughnessy's "conerstone growth" screen and O'Neil's CAN SLIM screen from Investor's Business Daily. We plotted the compounded growth of $10,000 invested in each system over a 7-year time period from 1998-2005 to compare the returns. As you can see in Chart 5 below, the MVP Rating System greatly outperformed the other systems and is even more impressive because the back-testing was performed using annual rebalancing while the comparison systems were rebalanced monthly. More frequent rebalancing has the effect of positively skewing the results of the other systems. Another factor which makes the performance of the MVP Rating System even more impressive is that the portfolio held an average of 170 stocks per month, while O'Neil's CAN SLIM screen held only 9 stocks, and O'Shaughnessy's "conerstone growth" screen held only 50 stocks. Concentrating the number of stocks, such as the Top 30 list and/or the MVP Focus list would improve the results even further.

Table 1
Group Greenblatt's Magic Formula MVP Rating System
Group 10 17.9% 41.2%
Group 9 15.6% 32.4%
Group 8 14.8% 23.0%
Group 7 14.2% 20.0%
Group 6 14.1% 18.9%
Group 5 12.7% 14.5%
Group 4 11.3% 13.7%
Group 3 10.1% 11.2%
Group 2 5.2% 8.7%
Group 1 2.5% 6.2%

Chart of annualized returns (1988- 2004)
1. Source: Joel Greenblatt's "The Little Book That Beats the Market"
2. MVP Rating System seperated by deciles
Source: American Association of Individual Investors

To further strengthen the credibility of the system, CSS Analytics omitted companies with market valuations less then $100 million and companies with stock prices trading for less than $1 dollar. This is in contrast to other systems whose performance is heavily biased by small companies with low stock prices that tend to be volatile and illiquied. Another testament to the system is that it works well in both bull and bear market conditions as indicated in Chart 5 below.

Chart 5

Bull Markets
Year S&P 500 MVP 9's
1967 20.1% 171.9%
1972 15.6% 12.9%
1975 31.5% 72.6%
1976 19.1% 64.7%
1980 25.8% 63.5%
1982 14.8% 74.6%
1983 17.3% 74.1%
1985 26.3% 44.3%
1986 14.6% 19.4%
1989 27.3% 43.8%
1991 26.3% 102.5%
1995 34.1% 61.2%
1996 20.3% 61.3%
1997 31.0% 56.1%
1998 26.7% 1.2%
1999 19.5% 56.6%
2003 26.4% 144.5%
Average 23.3% 66.2%
Bear Markets
Year S&P 500 MVP 9's
1966 -13.1% 3.7%
1969 -11.4% -11.4%
1973 -17.4% -29.4%
1974 -29.7% -9.5%
1977 -11.5% 37.2%
1981 -9.7% 32.1%
1990 -6.6% -7.5%
1994 -1.5% 6.5%
2000 -10.1% 2.1%
2001 -13.0% 70.8%
2002 -23.4% 31.0%
Average -13.4% 11.4%

Back-tested since 1966
The MVP Rating System has been rigorously back-tested by RiskLabs, an Applied Mathematics Division of the University of Toronto. The results reveal that the MVP 9-rated stocks beat the market in 14 of the past 15 years, 30 of the past 32 years and 35 of the past 40 years. That represents a corresponding winning percentage of 93%, 94% and 88% respectively. The MVP Rating System has outperformed the market in terms of total returns, number of winning years and number of double digit returns per year time and time again. See the exceptional returns in Table 2 and Table 3 below and compare the MVP 9-rated stocks to the S&P 500. These results are based on a buy and hold strategy with annual portfolio rebalancing, which means that your results will be even better when you apply our active buy and sell recommendations.

Table 2
MVP 9's
1966-1975 1976-1985 1986-1995 1996-2005
Average Returns Per Decade 38.5% 49.2% 39.4% 50.8%
No. of Winning Years per Decade 7 10 9 10
No. of Winning Years above 10% 5 9 7 8
No. of Winning Years above 20% 4 9 6 8

MVP 9's
RETURNS
SINCE
1966 Year Return Year Return Year Return Year Return
1966 3.7% 1976 64.7% 1986 19.4% 1996 61.3%
1967 171.9% 1977 37.2% 1987 6.9% 1997 56.1%
1968 130.1% 1978 40.1% 1988 38.3% 1998 1.2%
1969 -13.1% 1979 51.5% 1989 43.8% 1999 56.6%
1970 0.3% 1980 63.5% 1990 -7.5% 2000 2.1%
1971 45.6% 1981 32.1% 1991 102.5% 2001 70.8%
1972 12.9% 1982 74.6% 1992 56.8% 2002 31.0%
1973 -29.4% 1983 74.1% 1993 65.7% 2003 144.5%
1974 -9.5% 1984 9.6% 1994 6.5% 2004 63.8%
1975 72.6% 1985 44.3% 1995 61.2% 2005 20.9%

Table 3
S&P 500
1966-1975 1976-1985 1986-1995 1996-2005
Average Returns Per Decade 1.4% 9.7% 12.0% 9.1%
No/ of Winning Years per Decade 6 8 8 7
No. of Winning Years aboce 10% 4 6 5 5
No. of Winning Years aboce 20% 2 2 3 4

S&P 500
RETURNS
SINCE
1966 Year Return Year Return Year Return Year Return
1966 -13.1% 1976 19.1% 1986 14.6% 1996 20.3%
1967 20.1% 1977 -11.5% 1987 2.0% 1997 31.0%
1968 7.7% 1978 1.1% 1988 12.4% 1998 26.7%
1969 -11.4% 1979 12.3% 1989 27.3% 1999 19.5%
1970 0.1% 1980 25.8% 1990 -6.6% 2000 -10.1%
1971 10.8% 1981 -9.7% 1991 26.3% 2001 -13.0%
1972 15.6% 1982 14.8% 1992 4.5% 2002 -23.4%
1973 -217.4% 1983 17.3% 1993 7.1% 2003 26.4%
1974 -29.7% 1984 1.4% 1994 -1.5% 2004 9.0%
1975 31.5% 1985 26.3% 1995 34.1% 2005 5.0%

How to use the MVP Rating System
The MVP Rating System is simple to use. The system rates stocks on a 9-point scale. Stocks rated 9 are the most likely to outperform the market and stocks rated 1 are the most likely to underperform the market. You should focus on selecting stocks that receive a high score and avoid stocks that receive a low score when making your investment decisions. There are many stocks to choose from. This makes it easy to construct a diversified portfolio.

If you want to create a portfolio of top-rated stocks quickly, the following product is best suited for you:

If you don’t have the time to do a lot of research and are looking for a more structured approach, you can use the Top 30 MVP stocks and Top 30 MVP Large Caps to build your portfolio. These lists are generated by selecting the best stocks within the 9-rated category and are available for both U.S. and Canadian stocks.

MVP Focus List

The MVP Focus List is a list of the top 10 North American stocks. It is a list of five U.S. and five Canadian stocks with a mix of large and small cap companies. CSS Analytics, using an optimization system to ensure the best combination of risk and reward, selected these stocks using both the MVP Rating System and some of its proprietary metrics available only to institutional customers.

Top 30 MVP Stocks

The Top 30 MVP Stocks is a list of the Top 30 stocks. In contrast to the MVP Rating System which sorts the universe of stocks into separate categories from 1-9, the Top 30 MVP Stock list identifies the best stocks in the market listed in rank order. The Top 30 List is far more powerful than the average 9-rated MVP stock because it highlights the best performing stocks in the 9-rated category.

Top 30 MVP Large Caps

The Top 30 MVP Large Cap Stocks is a list of the Top 30 Large Cap stocks. These are companies with market capitalizations above $1 billion, with strong liquidity. In contrast to the MVP Rating System which sorts the universe of stocks into separate categories from 1-9, the Top 30 MVP Large Cap Stocks are also the best large cap stocks in the market listed in rank order.

THE BULL RUNNER DISCLAIMER
It is IMPORTANT that you keep in mind that stock trading involves risk and that The Bull Runners does not warrant nor guarantee that the MVP Rating System will work as outlined above. CSS Analytics is an independent company providing research, tools and systems for institutional and private client portfolio and money management. It is advisable that you conduct independent research on the stocks provided in their lists or receive the advice from your broker prior to making any investment decision.