Winter arrived in style this year, but the stock markets are on fire, which makes it a fine time to think about momentum.
The Screaming Value portfolio offers a case in point. It sports a strong track record on its own but its bargain-hunting ways worked even better with a touch of momentum.
The original Screaming Value portfolio generated average annual returns of 17 per cent from the end of 1999 through to the end of 2025. It handily beat the Canadian stock market, as represented by the S&P/TSX Composite Index, which climbed at an average annual rate of 8.1 per cent over the same period. (The returns herein are based on backtests using monthly data from Bloomberg. They include dividend reinvestment but not fund fees, taxes, commissions or other trading costs. The portfolios are equally weighted and rebalanced monthly.)
The portfolio picks stocks by starting with the largest 300 on the Toronto Stock Exchange by market capitalization, and then it narrows in on the 10 with the lowest EV/EBIT ratios. (Enterprise value, or EV, is equal to a company’s market capitalization plus its net debt. EBIT is an abbreviation for a company’s earnings before interest and taxes.)
However, there’s not much room to add momentum to a 10-stock portfolio. It’s better to start with the larger portfolio that buys the 20 (instead of the 10) stocks with the lowest EV/EBITs from the biggest 300 on the TSX.
Coincidentally, the larger portfolio also gained an average of 17 per cent annually over the 26 years to the end of 2025 and it was a little less volatile than the original portfolio.
Momentum is applied in two different ways to the 20 stocks in the larger portfolio to form two 10-stock portfolios. The six-month portfolio picks the 10 stocks with the highest returns over the prior six months from the larger portfolio, while the 12-month portfolio selects the 10 stocks with the best returns over the prior 12 months.
The 12-month portfolio outperformed the larger portfolio with average annual returns of 17.4 per cent over the 26 years to the end of 2025. But the six-month portfolio was the winner by far with average annual returns of 20.1 per cent over the same period.
You can see the returns of the larger portfolio, the six-month portfolio, and the market index in the accompanying graph.
The graph can be – somewhat arbitrarily – split into three eras based on the returns of the larger portfolio, which enjoyed strong gains in the first and third eras but suffered in the middle one.
In the first era, the Canadian market index floundered after the internet bubble burst in the summer of 2000. But the larger portfolio had a good time with gains of 814 per cent from the end of 1999 to the end of July, 2007, when it reach a new high. The six- and 12-month portfolios climbed 1,026 per cent and 988 per cent respectively over the same period while the market eventually recovered to gain 89 per cent.
The second era begins with the larger portfolio sliding into the financial crisis of 2008-09 and ends at the pandemic-prompted bottom in early 2020.
In the financial crisis, the market index tumbled 43 per cent from its prior high, but the portfolios fared worse. The larger portfolio fell a staggering 68 per cent from its prior high while the six-month portfolio declined 61 per cent and the 12-month portfolio dropped 64 per cent. The plunge put the screaming into the screaming value portfolios.
The second era spanned nearly 13 of the 26 years and saw the larger portfolio fall 1 per cent from its high in July, 2007, to its low in March, 2020. The six-month portfolio managed a 23-per-cent gain over the period but the 12-month portfolio dropped 29 per cent. The market index was the winner of the era with an advance of 41 per cent.
Spring returned to the market in the third era, which starts at the end of March, 2020, and lasted (at least) until the end of 2025. The market index enjoyed a rise of 181 per cent over the period while the larger portfolio gained 546 per cent and the six- and 12-month portfolios climbed by 749 per cent and 734 per cent, respectively.
All of the Screaming Value portfolios enjoyed terrific returns over the full 26-year period and I’ve high hopes they’ll continue to perform well over the long term. But investors should also be prepared for winter to return to the market along with its frightening crashes and frozen periods.
Details on the stocks in the larger Screaming Value portfolio and the others I follow for the Globe and Mail can be found via this link.
Details on the stocks in the larger Screaming Value portfolio and the others I follow for the Globe and Mail can be found via this link.
Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.
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