Beating the market may not be nearly as complicated as you might think. Extensive backtesting of Conscious Investor shows that it is able to select a portfolio of stocks that easily outperforms popular market indexes like the S&P500 and the Russell 3000.

How does it do this? Simple. By weeding the market of second-rate stocks that aren't likely to perform, the Stock Scanner in Conscious Investor instantly searches through nearly 6000 stocks and rejects 99% of the stocks that do not meet your strict selection criteria. In a market of thousands of stocks, most investors become overwhelmed resulting in confusion and worry.

But with such a variety of choice, there is no reason to invest your money into mediocre companies provided you know what selection criteria to use. The automatic Stock Scanner filters in Conscious Investor makes this easy using simple sliders in a small number of key areas like return on equity, liquidity ratios and proprietary tools STRETD™ and STAEGR™.

Let's go through a back-test of Conscious Investor we conducted recently.

1. Using the Roll-back function of Conscious Investor, we loaded company data from the year 2001 into the Stock Scanner.
2. We move the intuitive sliders to set what requirements we want in our stocks.
3. The Stock Scanner scans the market and selects a portfolio of stocks that meet your requirements.

The whole process took only 5 minutes and 23 seconds. That's how long it took to pick a portfolio that easily beat the market.

What were the results of the back-test?

The Stock Scanner selected 23 stocks out of the 5748 found in the Conscious Investor US market database. Of these stocks, only 7 of them come from the S&P500 index. All, except one, could be found in the Russell3000 index.

Conscious Investor Beat the Russell 3000 by 585.15% over 4 years!

If you had blindly placed invested your money into these 27 companies on July 2, 2001 and then sold these stocks on July 1, 2005, you would have averaged a return of 9.97% per year over the past four years. Compare this to the returns of two popular market indexes, S&P500 and Russell 3000. Just by investing in the companies the Stock Scanner has selected, we have easily outperformed these indices by almost 10% per year.

In dollar terms, an investment of $10,000 in the S&P500 would have lost -$343.48, in the Russell 3000 it would have gained $790.40, and in a Conscious Investor portfolio it would have gained $4,625.03. This means that the Conscious Investor portfolio would have beaten the Russell 3000 by 585.15% over 4 years!

Of course, when you simply take whatever stocks that pass through the filters, some may not perform as well as others. Conscious Investor has another layer to it that helps this. It is called the Quick Analysis. In a few minutes you would be able to get an in-depth picture of how the company is like. You can then further assess the ability of the company to grow its earnings and remove any companies that aren't likely to do so.

Lastly, by using the Scenario Analysis in Conscious Investor, you can calculate what price to pay for your stocks and at what price to sell them. This is done by using the formulas within the Scenario Analysis to incorporate a Margin of Safety into what price to pay for your shares. By doing this, you can be more certain of returns even if the company doesn't perform exactly to your expectations. After purchasing, you can then calculate what price to sell your shares to get the return that you desire.

Footnotes

1) "STRETD is a proprietary function in Conscious Investor that calculates the average annual percentage profit or rate of return from owning the stock. It is assumed that when the dividends are received, they are taxed.The dividends are also assumed to be reinvested by purchasing more shares in the company”. Prof John Price Conscious Investor Manual 2000.

2) "STAEGR is the function that measures the stability or smoothness of the growth in earnings and sales and is a partner to HGROWTH. HGROWTH measures how fast the earnings or sales are growing while STAEGR measures how smoothly this growth is taking place. The function STAEGR measures the stability of the growth of historical data from year to year as a percentage. This data can be any sequence of numbers. Its purpose in Conscious Investor is to measure the stability of earnings and sales per share. The maximum figure of 100% represents data that goes up or down by the same percentage each year. The calculations are based on fitting an exponential curve to the historical data with more emphasis placed on the stability of the growth of recent earnings. Special adjustments are made for negative earnings, extreme outliers and for earnings near zero”. The calculations also require at least three years of earnings. Prof John Price Conscious Investor Manual 2000

3) The prices quoted for July 2, 2001 have been adjusted to account for dividends reinvested into more stocks. These prices can be checked on any popular financial information provider such as Yahoo Finance.

4) The S&P500 had a return of -0.87% per year which means a total negative return of -3.43% over the 4 year period. A return of 9.97% (by the Conscious Investor portfolio) per year means a return of 46.25% over the same period of time.

5) The Russell 3000 had a return of 1.92% per year which means a total return of 7.90% over the 4 year period.

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