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The Valana Model: Model Validity

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It is easy to provide many pages of reason and evidence to convince visitors to one's website that your process to identify winning stocks is properly tested, reliable and highly valid.

However, at the end of the day the only thing that counts is how well the stocks recommended and/or added to the funds or portfolios performed over an extended period.

It is almost impossible for a stock selection source to manipulate the outcomes or exaggerate the actual performance achieved, but only if the following four conditions apply:

Condition 1: the specific recommendation and price when recommended or added must be published or distributed to subscribers or members within one week of the recommendation made.

Condition 2: it must be possible to check the progress or movement of the stock or instrument recommended through the media or other available source.

Condition 3: the period of measurement must stretch over an extended period of at least four years to enhance the reliability factor of the predictions or instrument choices made.

Condition 4: the period should include several contrasting market conditions such as experienced between January 2006 and January 2010.

One cannot really assess the validity and reliability of a stock selection facility where the above four conditions are not applicable and it is important to know that the above period with its high volatility and market crash is probably the ideal period to test and assess the true merit of any fund, process or facility available.

With stock selection sources (stock pickers) it is also very useful if more than one method of performance evaluation can be used to illustrate the actual period performance of the stocks recommended and selected by those sources over an acceptable time frame.

Every six months new data and information usually becomes available and, therefore, when using Method 1 the ideal period to assess performance will be the six months immediately after the recommendation was made.

In the tables below we illustrate the two most effective methods of performance assessment.

Method 1 – Assessing the movements during the next six months of the stock as recommended each year by Penny Hot Shares, SA Investor, Prestige Bulletin and Valana.

In this illustration we applied the stop losses as chosen by these sources, but we ignored any dividends earned as we just wanted to see the moves during the six months.

One should, however, keep in mind that where a source often recommend stocks with low trade liquidity it will be very unlikely to maintain those desired stop losses if the market should go in a downward spiral such as happened during 2008.

Most stock selection sources recommend around 24 stocks each year and, therefore, in fairness we also show the moves obtained during the first six months of the stock of the 25 highest rated companies assessed by Valana each year during the above period.

Method 2 – As some stock may contain longer term value and benefits one should also illustrate all the trading actions and recommendations made by a stock selection source in the form of a portfolio. Here trading costs, interest earned in the script account and all dividends allocated should be included in the actual returns obtained.

In this method we also show the average performance of the 20 most popular general equity Unit Trust Funds where the dividend benefits are included in the returns obtained and we compare the performance of the JSE All Share Index and the Satrix 40 ETF with the other instruments assessed.

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It is interesting to note that according to our calculations the listed SATRIX 40 tracker fund performed considerably better than the average of the 20 general equity Unit Trust Funds, probably as a result of the lower costs involved.

Whilst 12.8% does not seem to be much higher than 10.8% the compound effect over 30 years will result in you ending up with 85% better return from the 12.8% than you would obtain from the 10.8% (a 1.85 times better yield).

It is also wise to realise that the primary difference between a millionaire and a billionaire is the fact that the billionaire had a better understanding of what difference 1% compound return makes on an investment over an extended period of time.

The validity and reliability of the Valana model is assessed on an ongoing basis as data related to specific groups of factors and enterprise elements are captured at the same time when companies are analysed and assessed.

Where deviations occur we do an in-depth analysis using the captured data above to see if we can identify patterns related to such a deviation and then, if required, we may adjust factor matrix matches or weighting elements contained in the process model.

Whilst past performance is no guarantee for future performance we at Valana are confident that our model will continue to enhance the "odds for winning" in the stock markets and will over the years create great wealth building opportunities for all our members.

Disclaimer

In creating these portfolio illustrations we relied on the accuracy of the data as provided in the media and stock data sources used and, therefore, cannot accept any liability for any misrepresentation made as a result of inaccurate data published.

We also had to make certain assumptions where actions were not clear in the source publications but made an effort to give the source the benefit of the doubt where we were not certain as to intention or action recommended.

If the sources involved in our measurement exercise are of the opinion that we may have made incorrect assumptions or interpretation of data published or distributed by them they should contact us and if it is so we will immediately alter our data to reflect the corrections where applicable.

More detailed and comprehensive analysis information related to each specific stock as well as the incredible performance of the Valana process is available to members who will have full access to our website's library section.

In this library section comprehensive data is provided related to the Top 25 and Bottom 25 companies analysed and rated each year by Valana.

Valana is different from all other stock selection sources in that we are the only facility we know of where we go way beyond a "buy", "hold" or "sell" recommendation.

Valana allocates a numeric investment value rating to each stock analysed.

This not only tells you how the odds for winning differ from company to company, but it also gives very useful guidelines to identify stock that may be "shorted" because of low numeric ratings earned.

A very brief summary of the outcomes related to different levels of numeric ratings during the previous four years is shown below:

Very few of the stocks analysed in 2009 were in the group earning less than 75 points and the 14.7% positive growth in six months may be a bit misleading.

From the above outcomes as illustrated in the 2008 table it became clear that the Valana Model probably is even more valid and reliable during market downturns.

The companies where low ratings were allocated by the Valana Model almost always performed as poorly as the low ratings predicted. As mentioned this offers a great shorting opportunity to those more adventurous investors who favour using some of the many available derivative instruments such as futures and options.

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If you wish to gain access to our latest performance analysis free of any charge or obligation simply go to our Contact Us page and request Performance Update.