Steve Leuthold’s Value Screen with Balance-Sheet and Exit Rules

Summary

This article translates Steve Leuthold’s value-investing approach into a monthly stock-selection method for Chinese equities. It ranks candidates using low price-to-book, price-to-earnings, and price-to-cash-flow ratios relative to market averages, alongside a requirement that current assets equal at least 30% of market capitalization. It also favors lower long-term debt as a share of total capital and above-average current ratios, then selects the top 30 qualifying stocks. The stated aim is to combine inexpensive valuation with financial strength.

The trading rules call for monthly rebalancing, selling an individual holding after a 7% loss from cost, and exiting all positions if the broad market falls 13% within five days. The article reports a backtest from January 2014 through June 2017, including annualized returns, maximum drawdown, win rate, and average holdings, but provides no detailed methodology or discussion of transaction costs, survivorship bias, or out-of-sample performance. The reported results therefore describe a historical test and do not establish that the rules will work in other periods or markets.

Key ideas

• The screen combines relative valuation with liquidity and leverage measures.
• Candidates must meet the asset, debt, and current-ratio conditions before ranking.
• The portfolio selects up to 30 stocks and rebalances monthly.
• Exit rules include an individual loss threshold and a broad-market decline trigger.
• Reported results cover a historical backtest and lack details needed to assess robustness.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.