editor's outlook comparison: aaii broker survey

At the beginning of March, Evernote, the popu-lar online note-taking service, reported that it

had fallen victim to a hack that exposed customer usernames, email addresses associated with Evernote accounts and encrypted passwords. The company was quick to point out that passwords stored by Evernote are protected by one-way encryption, making them diffi cult, but not impossible, to decipher, and that they found “no evidence” that user content was affected or that sensitive fi nancial information was stolen. However, the company did take the extraordinary step of reset-ting the passwords of roughly 50 million user accounts. Evernote isn’t alone: It joins a list of companies—in-cluding Apple, Microsoft, Twitter, The New York Times, The Wall Street Journal and The Washington Post—that have all been targets of hackers in recent months. Closer to home, in the last month a couple of my friends have had their AOL accounts hacked and one even had her identity stolen. However, the cover story of the De-cember 2012 issue of Wired really opened my eyes to how easy it is for a hacker to get a hold of sensitive information, no matter how robust your passwords are. I strongly suggest going to Wired.com and reading Mat Honan’s account of being hacked last summer. As com-puters become more connected, the idea that passwords can safeguard our sensitive online information is becoming a fallacy. Is that going to keep me from banking online or managing my investment portfolio online? Defi nitely not. However, there are some steps you can take to make it harder for a hacker. First, and foremost, don’t reuse your passwords—if a hacker fi gures out one password, he owns all of your accounts. Second, don’t use a short password. Longer passwords, made up of both upper- and lower-case letters as well as numbers and sym-bols are much stronger than shorter

Tips for Thwarting Hackers

Editor’s Outlook Comparison:Online Discount Brokers

(continued on page 2)

Second Quarter 2013Volume XXXII, No. 2

dwww.computerizedinvesting.com

Spreadsheet Corner

• Part three in the series on calculating bond volatility ...... 12

Updates

• NinjaTrader 7 ................................4• Interest.com .................................5• Thomson Reuters MetaStock 12 .. 6• TC2000 Version 12/12.3 ..................7

On the Internet

• Tax Resources Online ............... 10

Feature

• Tweaking the popular CAN SLIM screen ......................................... 16

Fundamental Focus

• Using the Sortino ratio to measure downside risk ............ 20

Technically Speaking

• The rate of change (ROC) momentum indicator ............ 30

(continued on page 22)

As a member of AAII and reader of Computerized Investing, chances are that you perform a signifi cant

amount of investing on your own. Though individual inves-tors still call full-service brokers to place trades, many have now switched to fully using online discount brokerages. These online brokers have a number of advantages over “traditional” brokers, such as cost and convenience, and they are constant-ly evolving and improving. Most online discount brokerages charge $10 or less per trade, but there are some online deep discount brokerages that charge just a few dollars per trade.

Since most online brokerages are similar in pricing, the difference between each lies in the features and research that they provide. Like last year, this year’s online brokerage comparison provides an in-depth analysis of the features most individual investors use. I also point out some notable differ-ences between the various brokers and highlight each broker’s strengths and weaknesses. In addition, I provide a clear calcu-lation of the difference in pricing between the commonly used online brokers and deep-discount brokers.

AAII Broker Survey

Each year, we aggregate member responses for the AAII

Second Quarter 2013 Volume XXXII, Number 2

Editor’s Outlook (con’t)

I N D I V I D U A LN

A M E R I C A NASSOCIATIO

I N V E S T O R S

OF

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Computerized Investing2

passwords that are made up of only lower-case letters. If your account asks security questions, Honan suggests using answers that don’t necessarily match the question being asked. Lastly, he suggests using a unique email address for password recoveries to make it harder for a hacker to know where your password resets go.

In this issue, I revisit one of AAII’s most successful stock screening methodologies: William O’Neil’s CAN SLIM approach. This screen, which focuses on rapidly growing companies with strong price momentum, has been a stellar performer for the last 15-plus years. One of its drawbacks,

however, has been a lack of companies passing the screen over the last few years. The feature article that begins on page 16 outlines a change in the screen that better refl ects O’Neil’s philosophy and offers a broader collection of pass-ing stocks. Be sure to read the article to see the impact this change had on the screen’s overall performance.

Also, Joe Lan’s comparison, which begins on page one, examines the cost and service structure of the most popu-lar online discount brokers among AAII members. By fo-cusing on these “Big Five” brokers, we are able to provide a more thoughtful analysis of the services they provide instead of overwhelming you with tables of data.

Comparison: Online Discount Brokers ...................................... 1A look at the strengths and weaknesses of the fi ve online dis-count brokers most used by AAII members.

Messages: What Members Are Asking Online ....................... 3Questions on portfolio management programs, AAII’s Model Shadow Stock Portfolio and the Treynor ratio.

Product Update: New Computer Investing Products ............ 4This issue highlights two trading software programs, a fi nan-cial planning website and a cloud-based charting program. Plus, Quicktakes on new and enhanced sites and services you might want to check out.

AAII.com: AAII Investor Guides ............................................... 8A look at three of our most-used online guides.

On the Internet: Tax Resources Online ................................... 10Where to go for helpful tools and tips when fi lling out your taxes.

Spreadsheet Corner: Bond Duration & Convexity................. 12Part three of our series on bond calculations takes maturity into account when measuring price sensitivity.

Feature: A CAN SLIM Screen With No Float but Plenty of Lift....16Tweaking the CAN SLIM screen criteria to allow more stocks to pass, while preserving its potential for success.

Fundamental Focus: The Sortino Ratio ................................ 20An alternative measurement of stock risk that focuses only on the downside.

Technically Speaking: Rate of Change Indicator ................. 30Measuring price momentum with the rate of change (ROC) oscillator, which shows the speed at which prices are changing.

EDITORIAL STAFFEditor, Senior Financial Analyst—Wayne A. Thorp, CFA ([email protected])Assistant Financial Analyst—Z. Joe Lan, CFA ([email protected])

PRODUCTION STAFFManaging Editor—Jean HenrichProduction Editor—Andrew LautnerEditorial Assistant—Fareeha Ali

Chairman—James B. Cloonan, Ph.D.President—John Bajkowski

Web Manager—Peter NguyenWeb Address: www.ComputerizedInvesting.com

Published quarterly by the American Association of Individual Inves-tors, 625 N. Michigan Avenue, Chicago, IL 60611; (312) 280-0170, (800) 428-2244; www.aaii.com. ISSN 0734-4597. Subscription rate: $40/year. Special rate of $30/year to members of AAII.

Computerized Investing welcomes letters to the editor. We will print as many as space allows but, in the interest of space, we reserve the right to edit. Address letters to: Editor, Computerized Investing, 625 North Michigan Ave., Chicago, IL 60611. Be sure to include your name and address. Email should be sent to [email protected].

AAII is not a registered investment adviser or a broker/dealer. Read-ers are advised that articles are provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities. The opinions and analyses included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or any delay or interruptions in, the transmission thereof to the users. All investment information contained herein should be independently verifi ed.

Past performance is no guarantee of future results. Investment in-formation provided may not be appropriate for all investors. Invest-ment information is provided without consideration of your fi nancial sophistication, fi nancial situation, investing time horizon, or risk tolerance. Readers are urged to consult with their own independent fi nancial advisers with respect to any investment.

Computerized Investing is a registered trademark of the American Association of Individual Investors.

©2013 American Associationof Individual Investors Printed in the U.S.A.

essagesComputerized Investing welcomes messages to the editor. We reserve the right to edit. Email should be sent to [email protected]. Letters should be addressed to: Editor, Computerized Investing, 625 N. Michigan Ave., Suite 1900, Chicago, IL 60611-3151.

Portfolio Management ProgramsI use Quicken to follow my portfolio, which contains sev-

eral mutual funds such as life cycle funds. When I analyze the asset allocation, the life cycle funds are categorized as “other” which is not helpful for determining what percent of my portfolio is made up of which asset class.

Can you recommend a program that can take exported Quicken data and analyze a portfolio by asset class and can extract the breakdown of mutual funds into its report?

—ph4235 via Web inquiry

CI Editor’s Response:There are numerous portfolio management software programs

and websites available, each with varying features. Computer-ized Investing provides yearly articles on portfolio management software programs and websites, which should be able to help you choose something that is right for you. The most recent software program review can be found here: www.aaii.com/computerized-investing/article/the-top-portfolio-management-software. The most recent review of online portfolio trackers can be found here: www.aaii.com/computerized-investing/article/the-top-online-portfolio-trackers.

Though online portfolio trackers are becoming more ca-pable, the most robust portfolio trackers are still the software programs. Additionally, online portfolio trackers require us-ers to enter login information for accounts so that they can automatically update your portfolio. Certain users might be uncomfortable providing that type of information.

Life cycle funds are typically a combination of asset classes that can vary over time. Oftentimes, there is no set asset class that these funds fall into. Unfortunately, you may fi nd that this is the case with all portfolio management software programs and websites. Investors with these types of funds may need to manually input asset classes.

Model Shadow Stock Portfolio RulesFor the Model Shadow Stock Portfolio management criteria,

I have a couple questions/clarifi cations:1. There is a sell rule regarding 12-month earnings from

continuing operations being negative. Does this apply to stock buys as well? Would a stock be added if it has negative earnings from continuing operations in the last 12 months?

2. Is the “last 12 months” time period reported in the annual statement, or is it the sum of the last four quarters?

3. What is ‘earnings from continuing operations’? —69Stingray via Web inquiry

CI Editor’s Response:The Model Shadow Stock Portfolio is one of AAII’s most

popular offerings. For buys, the Model Shadow Stock Port-folio rules stipulate that the fi rm’s last quarter and last 12 months’ earnings from continuing operations must be posi-tive. The last 12 months (called trailing 12 months, or TTM) is the sum of the last four quarters.

Earnings from continuing operations can be different de-pending on what information you are using. By defi nition, earnings from continuing operations include “core” busi-ness earnings, or earnings from business segments that are expected to operate in the foreseeable future. Earnings from continuing operations are often reported in company fi nancial statements. We use the earnings reported at the brokerage account used to house the Model Shadow Stock Portfolio.

About the Treynor RatioMy question is regarding the use of the Treynor ratio for

investment decisions. You wrote [in the First Quarter 2013 issue’s Fundamental Focus]: “Looking solely at return fi gures makes the choice very clear: One should invest in Wynn Resorts. However, the Treynor ratio paints a different story. . . . The Treynor ratio actually points to Pfi zer generating a better risk-adjusted return.”

I have calculated the ratio for 32 stocks I own or am fol-lowing, and fi nd that stocks that I, as a value investor, would consider buying (because they appear to be undervalued) tend to have lower Treynor ratios than the median for the market as a whole. This is no doubt because, being undervalued, the stocks I follow do not have exceptional recent price performance. Conversely, stocks that have performed well in the recent past tend to be fully valued, and are therefore not necessarily good candidates for future returns, although they may have high Treynor ratios based on their historical performance.

I wonder whether the historical Treynor ratio isn’t a better after-the-fact performance measure than it is a stock-picking tool. You write that the Treynor ratio measures “how well an investment vehicle compensates the investor for a given level of risk.” At least for the historical version of the ratio, wouldn’t it be better to say, “has compensated”?

Now, the “expected return” version would be a different story. I hope you are planning to do an article showing how this version might be implemented, as I, for one, would fi nd it very useful in comparing potential investments.

—Ronald Longhofer from Michigan via Web inquiry

CI Editor’s Response:I agree. Any ratio calculated using historical fi gures is a

better indicator of “after-the-fact” performance. There is no way to get around that. However, as stated in the article, the Treynor Ratio can be calculated using expected returns. Of course, using expected average returns may not be accurate since predictions are used. However, historical averages are also potentially problematic, as there is no guarantee that past performance will carry forward.

Additionally, the data is harder to obtain. For larger fi rms, there can be several analysts that provide 12-month target prices, which can be used as a starting point. In addition, long-term earnings growth rates can be used to come up with possible return fi gures.

3Second Quarter 2013


NinjaTrader LLC develops trading software for active stock, futures and forex traders. The company’s most recent innovation is NinjaTrader 7. Memory usage and CPU utilization is more effi cient. Application start-up is quicker, and the core chart bar construction algorithms were rewritten for performance gains.

The data management enhancements begin with a new historical data manager, which allows the user to import/export and edit historical data. Conveniently, change logs are saved, and original values can be easily restored. Con-tinuous contracts allow the user to work with the front month for trading and rollover dates for the most popular futures contracts. Multiple time frame data series can be plotted within a single chart. NinjaTrader 7 implemented new chart styles, indicator plot styles and ask/bid charts.

The new session manager allows the user to predefi ne session templates for when a market trades. Each template can be assigned to a specifi c instrument in the Instru-

ment Manager. NinjaTrader 7 allows developers to construct their own custom data import routines. A MetaStock import format has been added in addition to two variations of NinjaTrader default format.

NinjaTrader 7 has incorporated market replay enhancement that al-lows users to download data directly from the historical database and replay the data on a chart. This fea-ture can be used to research markets and backtest previous transactions. The trade simulator features the ability to trade both live and simula-tion accounts at the same time.

The new program contains more than 80 performance metrics and performance graph options for ana-lyzing trading strategies. The mini data box from previous versions has

been enhanced to take up less space, display all series in a panel and display plot values. Indicator defaults and labels have been improved for functionality.

The cyclical process of scripting, compiling, backtest-ing, tweaking, compiling and backtesting again has been improved by creating pinnable docked windows that allow the user to compile immediately and simply click “run.” At any point in the process, a part of a strategy can be complied, whereas in the earlier version of the program strategies could only be compiled at the end.

System Requirements: Windows XP or newer; 2 GB RAMPrice: Free for standard features & historical data; pur-chase: single broker $995/year, multi broker $1,495/year; lease: single broker $600/year, multi broker $900/year

NinjaTrader, LLCwww.ninjatrader.com

NinjaTrader 7

SmartMoney Select Discontinuedwww.smartmoney.com

SmartMoney.com, the online arm of SmartMoney magazine, has announced that it is discontinuing its Select service, effective immediately. SmartMoney Select was a subscription service that offered real-time stock and ETF quotes and stock screening and other premium tools.

Schwab Offers ETF OneSourcewww.schwab.com/etfonesource

On February 7, 2013, Charles Schwab launched the

Schwab ETF OneSource trading platform, which provides access to 105 exchange-traded funds (ETFs) with $0 online trade commissions. The list of ETFs includes all 15 Schwab exchange-traded funds, as well as 90 ETFs issued by PowerShares, State Street, Guggenheim, ETF securities and United States Commodity Funds. OneSource is acces-sible through any of Schwab’s online trading interfaces, and clients do not need sign up to take advantage of the commission-free structure.

PersonalFinanceNews.com Compiles Headlineswww.personalfi nancenews.com

PersonalFinanceNews.com is a new website created to

Quicktakes

Product summaries are based on the information furnished to Computerized Investing by theproducers of the software; they do not represent fi rsthand knowledge by Computerized Investing.


offer viewers a large selection of top news articles pertain-ing to personal fi nance topics. The site includes articles from CNN Money, DailyFinance.com, Forbes, MSN Money and many more. It compiles information from these sources and channels them into one, easy-to-use site. Each source-site has its own column, and the site simply lists the top headlines under each column.

WSJ WorldStream Offers Short Videoswsj.com/worldstream

The Wall Street Journal (WSJ) launched WSJ World-Stream, which they defi ne as a global video newsgathering and publishing platform for short-form videos shot via

smartphone by WSJ and Dow Jones journalists. Videos are under a minute in length and reviewed before posting. The videos are used for WSJ stories, incorporated into the WSJ’s daily live video programming and used in produced video packages. WorldStream is available for mobile de-vices, and content can be shared.

Share Market Info at SocialTrade.comsocialtrade.com

Tim Knight, founder of Prophet Financial Systems (now owned by Ameritrade), has introduced SocialTrade.com. SocialTrade allows members, who can sign up for free, to stack, share and store knowledge about markets and fi nan-

Interest.com is a new way to pursue fi nancial security. The website is designed to aid users in making deci-sions about their fi nancial lives. Interest.com is owned by Bankrate Inc., which is an aggregator of fi nancial rate information.

Content on Interest.com is divided into six channels: mortgages, home equity, auto loans, bad credit, CDs/sav-ings and credit cards. In each category, the user has the option to ask questions and receive direct feedback from the site’s editors or experts. Interest.com is connected to more than 100 newspapers in 31 states, which keeps the

Interest.com website up to date and full of pertinent information. If you are looking for a mortgage rate, the site gives

you several different options based on search criteria input and compares results across the industry. Each lender that is listed also comes with “lender informa-tion” to keep the viewer informed on the company they could be lending from.

If you are one of the many considering whether now is the time to refi nance your mortgage, Interest.com will help you make this decision by giving you plenty of information, tips and deals to analyze your situation.

Credit cards have been a known issue not only in America, but many other countries. Sometimes credit card users are misinformed on the interest rates or fees associated with their new cards and just swipe away. Interest.com allows you to evaluate and pool together information about new credit cards, as well as read up on what some common mistakes are and learn about preventative measures to card abuse.

Auto, debt and savings are three other areas of the site. These sections provide information on their desig-nated topic and assist viewers in making decisions in-volving these types of loans or plans as well as provide information about what’s going on in our economic environment.

One of the most useful areas of the site is the glos-sary. Defi ning words can help individuals understand what they’re reading and lead to making better deci-

sions.Interest.com provides plenty of information to help us-

ers understand and calculate loans or compare alternatives among various companies.

System Requirements: Internet connection and Web browserPrice: Free

Bankrate, Inc.www.interest.com


Thomson Reuters MetaStock Pro has released a new version specially designed for real-time traders: MetaStock 12. It is powered by MetaStock XENITH Real-Time Data and News package and offers information, tools and ana-lytics for traders. It also provides mobile access.

An added feature of Thomson Reuters MetaStock 12 is the Power Console, which compiles the important tools of MetaStock Pro into one place. This feature appears when the program is opened and allows you to open a chart, start a scan, run a test, review reports, make custom lists and more. Details can be added to your Power Console, such as range, templates, expert advisers and more.

In the previous versions of MetaStock, users were limited to charting high, open, low and close prices. With Thomson Reuters MetaStock 12, fi elds can be changed to represent ask, bid, block volume, mid price and volume-weighted average price (VWAP). The new version allows users to convert currency in any or all of their charts with

the current exchange rate. The Enhanced Tradetime Support addition allows charts to display the local time where the security is trading.

Data on-demand loads the latest data for that security immediately after the user opens the chart. It displays the latest price, volume, error correlation and split information.

The program includes over 250 built-in trading indicators and systems. The Power-Tools include the Explorer, the Expert Advi-sor and the System Tester. In earlier versions, Downloader was separate software that came with MetaStock, but with MetaStock 12, there is no Downloader. For $25 a month, you can receive a Reuters datafeed that will give you daily end-of-day data, as opposed to creating composites via Downloader.

Thomson Reuters MetaStock 12 makes looking for patterns easier by automatically centering price charts as you scroll to the right

or left. A vertical line can be created to go through the panes (inner windows) to invert the y-axis or go to a semi-log scale. Built-in tool bars allow for data to be refreshed or periodically changed. If you subscribe to real-time data in any one of the global regions, you get global delayed data at no additional charge.

Free customer support and a library of online resources are offered, along with a 30-day money-back guarantee for all non-subscription products.

System Requirements: Windows XP or higher, 2 GB of RAM; 750 MB disk space; high-speed Internet connectionPrice: Software-only subscription, $100/month, $960/yr; software and data, $250/month, $2,400/year; software only, one-time purchase $1,395

Equis International/Thomson Reuterswww.metastock.com

Thomson Reuters MetaStock 12

cial charts. Users of the website can post information on specifi c “stacks,” which will subsequently appear on the activity feed. Members can then rate items, add items to stacks, comment, follow other social traders or subscribe to their favorite stacks. Stacked pages can be shared on other social networking websites like Facebook or Twit-ter. A member can have emails sent to them regarding the stacks they follow at the end of the day.

Find Private Firms on SharesPost.com sharespost.com

SharesPost.com is an online platform that connects

investors with late-stage venture-backed companies and their shareholders. Investors can discover investment op-portunities in fast-growing companies. Another feature is for option/shareholders. These users can access an exten-sive network of qualifi ed investors to fi nance the exercise of their options or gain liquidity of their shares. Third-party research is provided, as well as investor assistance.

Hedgeable.com Offers Managed Accountswww.hedgeable.com

Hedgeable.com is an asset management fi rm offer-ing risk-managed solutions for investors. They offer free


managed accounts and low-fee accounts. Three programs offered for retail investors are: retirement free, retirement plus and high-net-worth. They accept nearly every type of retirement and non-retirement account including tradition-al IRA, Roth IRA, rollover IRA, SEP IRA, SIMPLE IRA, 401(k), and individual and joint taxable. In their free pro-gram, they offer personalized diversifi ed ETF portfolios. The retirement free program is rebalanced using modern portfolio theory. The account minimum is $5,000. Hedge-able.com is planning to launch proprietary ETF products available for purchase through fi nancial advisers and bro-kerage fi rms, as well as a wealth management option.

LikeAssets Portfolio Tool on WSJ.comwww.likeassets.com

LikeAssets announced that Dow Jones is now offer-ing a customized version of LikeAssets Portfolio tool via WSJ.com for all Wall Street Journal subscribers. The new Portfolio feature is an investment tracking platform that syncs all brokerage accounts and integrates with the WSJ’s reporting. Users can track their investment goals and search through relevant news tailored specifi cally to their portfolio. Performance graphs are provided, along with investment tables, to keep investors on top of the market.

TC2000 is a Worden Brothers’ cloud-based charting program. Version 12 runs off Microsoft Silverlight, and it gives the user fast charting capabilities because the actual program calculations are being run on Worden Brothers’ computers, which deliver the results in real-time data. Platinum users get real-time data directly from the ex-changes and pay an extra $9.25 per month. Gold users get data from the BATS exchange, and Worden covers the cost of that feed. Users can scan indexes, personal watch-lists or prebuilt watchlists and be notifi ed when they pass or fail a specifi ed requirement. Three real-time scans can continue at once, eliminating the need for manual updates.

The alert monitoring service allows you to set your own condition for the alert, then sends an email, audio and visual alert. The previous version had this feature, but it was not free; now, it is part of the basic program. Gold members receive 100 alerts for free, and Platinum mem-

bers receive 200 free alerts. When you save a note, you can choose whether your fol-lowers are allowed to view it, and Platinum membership is no longer required to view public notes.

Double-head arrows are included on all panes and indicators to allow users to move, pin or overlay the panes/indicators in any way that they want. When two panes are overlaid, there is an option to scale them together. This increases the ease with which alerts are set up. You can overlay indicators and receive an alert when they cross.

Sorting and scanning columns can be saved into a library. When new workspaces are created, the columns don’t need to be rebuilt: The user can simply click on the set of columns that they want to use.

Stocks can be compared to other stocks in the same industry with the click of a button. Another added feature is the possibility to compare up to 10 different stocks, indexes

or ETFs on one chart. Users can now customize each watchlist by changing the color or font size.

A chat room can be launched from the starter window. Chat rooms were added to the forum, and users can create their own. In addition, charts can be easily sent to Twitter. News can be loaded onto the screen, so investors can keep up with recent news regarding the stocks on their watchlist.

TC2000 is also available as an application for Android phones, iPhones and iPads.

System Requirements: Windows XP or newer; 512 MB RAM; 2 MB hard drive spacePrice: Gold Service $29.99/month; Platinum Service $89.99/month

Worden Brothers, Inc.www.worden.com/products/tc2000

TC2000 Version 12/ 12.3 Update

AAII. omIf you have a program of interest to computerized investors, you can upload it to theAAII website at no charge, email it to [email protected] or mail a disk anddocumentation to Computerized Investing.

The Tax Guide was updated detailing changes in new tax legislation and the Top Funds Guide shows performance as of the end of 2012. To navigate to AAII Guides, click on the Getting Started tab at the top of the home page at AAII.com, then click on Investor Guides from the submenu. In total, 10 guides are available on the AAII website for members. Here, we highlight the AAII Tax Guide, the Top Mutual Funds Guide and the Guide to Exchange-Traded Funds.

AAII Tax GuideNew tax legi slation was signed into

law at the start of the New Year, ap-proximately 2½ weeks after AAII sent the 2012 Tax Guide to the printer for the AAII Journal. The new law permanently extends some provisions of the prior tax law that had expired at the end of 2012 and establishes new rules for high income earners. AAII’s online Tax Guide has been up-dated to include all the changes to tax laws made in the American Taxpayer Relief Act of 2012; it is accessible at www.aaii.com/guides/taxguide (Fig-ure 1). The Tax Guide provides tables charting the tax rates for capital gains, qualifi ed dividends and income brackets; child tax credits; mar-riage penalty relief; and exemption amounts for alternative minimum tax (AMT) and estate taxes. Tables cover the tax years 2012 and 2013.

In addition to all of the data pro-vided in the Tax Guide, a link to an interactive Tax Forecasting Work-sheet is also available. The worksheet allows users to input income, adjust-ments and deductions and calculates an estimated balance due (or refund expected) for the tax years 2012 and 2013.

Top Mutual Funds GuideMutual funds are designed to help

investors diversify their portfolios without having to spend the time on choosing and tracking individual stocks. Mutual funds are typically actively managed and usually have

Figure 1. AAII Tax Guide 2012

AAII Investor Guides

As a member of AAII, you are free to access any one of our guides at any

time on AAII.com. These guides are updated throughout the year; recent guide updates include the Tax Guide and the Top Mutual Funds Guide.

Figure 2. Top Funds Guide


AAII. om

higher expense ratios than exchange-traded funds.

The mutual funds included in AAII’s Top Mutual Funds Guide are all no-load and low-load funds that are readily available to individual investors. The guide covers 1,560 funds and can be found at www.aaii.com/guides/mfguide. Five perfor-mance tables are included: Table 1 lists the performance of common in-dex benchmarks, Table 2 summarizes average performance and risk of fund categories, Table 3 compares the per-formance of the 50 most widely held funds (Figure 2), Table 4 lists the 50 best-performing funds of 2012 and Table 5 lists the 50 worst-performing funds of 2012. A unique risk-adjust-ed return table is also available.

In the individual fund listings, funds are grouped by category and listed alphabetically within each cate-gory. The listings provide information on a variety of return and risk data, portfolio composition, and fees and expenses. The listings can be viewed online or downloaded into Excel.

If you would like to request a copy of a fund prospectus and annual re-port, telephone numbers and website addresses of the fund families are also provided.

Guide to Exchange-Traded Funds (ETFs)

In contrast to mutual funds, exchange-traded funds usually track an underlying index and many ETFs

A new CI Online Exclusive was posted to the Computerized Investing website since the last quarterly issue.In February 2013, Joe Lan, CFA, wrote “Tax Preparation Services.” He provides an in-depth review of three of the

best tax preparation services available: TurboTax, H&R Block and TaxAct. These services are still available through a CD, but are each also available completely online, which is the most convenient and quickest way to fi le your taxes. The online exclusive details the strengths and weaknesses of each service and should help you choose a tax service during tax season.

To receive notifi cations of new postings at the Computerized Investing website, subscribe to the free CI Email. In addition to announcing newly posted content, the email reviews websites and shareware programs, reports on smartphone apps of interest to investors and discusses tech gadgets for the enthusiast in all of us.

Sign up for the weekly CI Email at www.aaii.com/email and look for it in your email inbox every Saturday.

In Case You Missed It: Recent Online Exclusive

are not actively managed (some are). Typically, expense ratios for ETFs are lower than those for actively man-aged mutual funds. ETFs provide a great choice for investors looking for exposure to certain sectors or indus-tries that are diffi cult for the indi-vidual investor to research.

Be sure to keep in mind your fi nancial goals, diversifi cation needs and risk tolerances when selecting an exchange-traded fund.

Once asset classes and catego-ries are determined, the AAII ETF Guide can help you fi nd appropriate exchange-traded funds. Most funds are named based on their underly-ing index (e.g., SPDR S&P 500

tracks the performance of the S&P 500 index). The construction of the underlying index has a signifi cant im-pact on the fund’s performance: For example, Exxon Mobil Corp. (XOM) has a far larger weighting in iShares S&P 500 Index (IVV), which tracks a capitalization-weighted index, than it does in Guggenheim S&P Equal Weight (RSP), which tracks an S&P 500 index that weights all compo-nents equally.

The ETF Guide found at www.aaii.com/guides/etf-guide covers nearly 1,500 funds. Again, funds are listed alphabetically by category, and you can view the lists online (Figure 3) or download an Excel spreadsheet.

Figure 3. Guide to ETFs


ways to get your questions answered, including an online interactive tax assistant.

Tax Tips and Tools

1040.comwww.1040.com

1040.com offers numerous re-sources to help individuals with their taxes. Its federal tax guide is expan-sive and should cover most individual investors’ needs. A link to the guide is provided on the right-hand side of the website. The guide is divided into several sections, starting with fi ling basics and continuing through income, withholding, dependents, credits, deductions, refunds and payments. There is also a tax calen-dar and a tax tips section. The state tax area links to the tax department website for each state.

Before fi ling, you may want to use the federal tax return estimator to get an idea of your tax refund or liability. In addition, the website of-fers several tools that will help make

Tax Resources Online

This issue of On the Internet points you to the most useful websites for tax laws, tax tips and tax preparation services.

Government Site

IRS.govwww.irs.gov

The IRS website should be your go-to source for defi nitive tax in-formation. The site provides all tax forms and publications, which you can download.

A Hot Topics section covers the most-asked-about issues involving taxes and tax returns. In addition to tax tools, IRS.gov provides informa-tion on fi ling, payments, refunds, credits and deductions, as well as tax law news. Users can also learn about tax fraud. To fi le your taxes for free at the IRS website, go to www.irs.gov/efi le.

The Help and Resources area of the website provides you with several

your life easier, including tools that help you estimate the amount of your Social Security that may be taxed and whether you should itemize or pay the standard deduction. Finally, you can access PDF versions of common-ly used forms, along with instructions for each. The site offers tax fi ling for free if you meet certain requirements. Basic and deluxe tax preparation versions cost $19.95 and $39.95, respectively.

DailyFinance.com Tax Centerwww.DailyFinance.com/category/taxes

The Tax Center section of DailyFinance’s website provides users with helpful information about taxes. The site offers an extensive amount of updated news surrounding the topic, and how taxes can affect you. There are featured videos and several different tax calculators provided to help users. If you have questions about bonds, credit, debt and how changes in your tax rate can affect your retirement, The Tax Center is a website that will be useful. The

site provides information on specifi c life events and how they might affect your taxes, as well as several tools and resources.

Bankrate.com Tax Centerwww.bankrate.com/taxes.aspx

Bankrate.com provides a section of their website specifi cally for taxes (Fig-ure 1). The site provides hundreds of tax forms and information on state tax rates. Bankrate lists deduc-tions that may be new and information for all different tax brackets and fi lers. The site can educate you on what bracket you fall into. Concerning tax breaks and credits, viewers can read helpful tips and explanatory information. The site seeks

This section explores investment-related sites on the Internet. Each issue highlights an area that may be of interest to Computerized Investing readers. We welcome referrals to sites you have discovered.

Figure 1. Bankrate.com Tax Center


preparation, and charges various rates depending on how compli-cated your tax return is. In addition, TurboTax offers several useful calcu-lators, such as a tax refund calculator, W-4 salary calculator and IRA retire-ment calculator. The website fea-tures several tax guides and includes short how-to videos. Users may also browse tax guides by category. The Support tab of TurboTax offers tax help for numerous tax situations.

H&R Blockwww.hrblock.com

H&R Block provides tax prepara-tion, audit support, business services and refund options for users. The site offers an option to fi le for free online, as well as advanced fi ling options to assist those who invest or seek expert advice. There are several different tax calculators and tips, along with frequently asked questions involv-ing taxes. H&R Block guides users

to keep viewers informed about new tax laws, which are constantly being imple-mented. If you are an in-vestor, the investment and capital gains section can assist you in handling the taxes for your investments. Answers to concerns about adjusting withholdings are also provided.

MarketWatch Taxeswww.marketwatch.com/taxes

MarketWatch, a com-prehensive site with free investment data and analy-sis, offers a section devoted to taxes (Figure 2). To access this area, go to the Personal Finance tab and then choose Taxes from the submenu. MarketWatch offers videos and articles with tips for tax prepara-tion and discussions of tax law.

Yahoo! Finance Taxestaxes.yahoo.com

Yahoo! Finance’s tax resources are found in the Personal Finance sec-tion. The area includes articles, news and a how-to guide with tips and guidance for taxpayers.

Tax calculators help you determine tax savings, whether you should exercise stock options, the impact of infl ation, the tax advantages of an-nuities and more. A glossary defi nes commonly used tax terms. A list of popular articles as well as an Expert Opinion section round out the site’s free offerings on taxes.

Tax Prep Services

TurboTaxwww.turbotax.com

TurboTax offers a range of services, from simple through corporate tax

through the tax preparation process and provides them with the necessary resources to discover which solution best fi ts their needs.

TaxAct www.taxact.com

TaxAct offers the least expensive way to fi le taxes online, and provides users with information similar to other tax preparation services like H&R Block or TurboTax. TaxAct has different options for those who are experienced in fi ling taxes, and makes inputting your information directly from your forms very easy. If you aren’t an experienced fi ler and may need extra assistance, the program offers that as well.

More Info Online For more on online tax prep servic-

es, see January’s Computerized Invest-ing Online Exclusive, which is avail-able at computerizedinvesting.com.

Figure 2. MarketWatch Taxes


A B C D E F G H I J K L M N O P RQ1234567


SpreadsheetCorner

and bond prices. If interest rates go up, the value of the fi xed interest and principal payment you expect to receive from the bond goes down. Conversely, if interest rates fall, the value of bonds will increase. In other words, the bond market rallies when interest rates fall (and, conversely, it falls when interest rates rise).

Long-term bonds are much more sensitive to changes in yields than short-term bonds. A longer term to maturity means it takes longer for investors to recover their initial investment, so the market value of the bond is more sensitive to changes in interest rates. Recall, too, that the coupon rate is the interest rate on the bond that is established at the time the bond is issued. The higher the coupon rate, the less the value of the

bond will change in response to interest rate changes. In con-trast, the lower the coupon rate, the more the value of the bond will vary with changes in interest rates. Figure 1 from the Fourth Quarter 2012 Spreadsheet Corner article illustrated the relationship between market interest rates and bond prices. Since bond values change inversely to the change in inter-est rates, a long-term, low-coupon-rate bond will suffer a very great decrease in value when inter-est rates increase; a short-term, high-coupon-rate bond will change relatively little in value.

When consider-ing different bonds, it is useful to have a measure of price sen-

Bond Duration & ConvexityWayne A. Thorp, CFA

sitivity to interest rate changes that takes into account both maturity and coupon effects. One such measure is known as duration.

Duration

In a book written for the National Bureau of Economic Research in 1938, Frederick Macaulay fi rst devel-oped the concept of bond duration (although it wasn’t until the 1970s that duration came into common use). Duration basically measures the weighted average amount of time it takes to receive the present value of all the cash fl ows from a bond, mea-sured in years, such that:

DMac = [Σ tCt ÷ (1 + YTM)t] ÷ [Σ Ct ÷ (1 + YTM)t]

Where:• t = the time period in which the

cash payment is received• Ct = the cash payment received

at time t• YTM = the per period (typically

semiannual) yield to maturity

If the yield to maturity is semian-nual, the duration we arrive at is actually the number of semiannual periods. So, in this case, we would divide the result by the payment frequency (two, for semiannual) to arrive at an annual fi gure.

The fractional term of the dura-tion formula is the present value of each cash fl ow as a percentage of the bond’s price, which serves as the weighting in the average, and t is the number of periods until each cash fl ow is received.

Generally speaking:• Bond duration is less than term

to maturity and will equal the fi nal maturity if and only if there is a single payment at maturity (a zero-coupon bond);

• There is an inverse relationship between duration and coupon rate; and

• There is an inverse relationship

The last two installments of Spreadsheet Corner provided

templates on how to calculate bond prices, returns and price sensitivity to changes in interest rates and time to maturity (Fourth Quarter 2012 and First Quarter 2013 issues; available online at ComputerizedInvesting.com). These articles laid the groundwork for a discussion of more advanced, and accurate, measures of bond volatility.

As bond investors, we need to be aware of the impact that changing interest rates (yields) can have on the value of bonds. Volatility measures allow us to compare bonds of differ-ing maturities and coupon rates to fi nd the ones that fi t our investment horizon and our forecast of future interest rates. Recall that there is an inverse relationship between yield

Figure 1. Comparing Duration When Coupon Rates Differ

This spreadsheet can be downloaded at the online version of this article at www.computerizedinvesting.com.


SpreadsheetCorner

between duration and yield to maturity.

Excel has a built-on function called DURATION:

DURATION(settlement,maturity,coupon,yld,frequency,basis)

Such that:• Settlement is the bond’s settle-

ment date, which is the date after the issue date when the security is traded to the buyer;

• Maturity is the bond’s maturity data;

• Coupon is the bond’s annual coupon rate;

• Yld is the bond’s annual yield;• Frequency is the number of

coupon payments per year—for annual payments, frequency = 1; for semiannual, frequency = 2; for quarterly, frequency = 4; and

• Basis is the type of day count basis to use (typically 0 for U.S. bonds).

If this function is not available in your version of Excel, and returns the #NAME? error, you can download and install the Analysis ToolPak add-in from the Microsoft Offi ce website.

Figure 1 illustrates the Macaulay duration for two different bonds with the same time to maturity (20 years) and yield (5%), but differing coupon rates (4.0% for Bond 1 and 2.0% for Bond 2) and the impact of an increase in yield from 5% to 6%. For Bond 1, the duration formula entered in cell B19 is:

=DURATION(B2,B3,B5,B6,B9,B10)

We then copied this formula to C19 to fi nd the duration of Bond 2.

Duration works best only for small changes in yield, as we will discuss later, so in this example we are only using a 1% change from 5% to 6%. The duration of Bond 1 is 13.47 years, and for Bond 2 it is 15.42 years. Since Bond 2 has the longer duration, it should be more sensi-tive to interest rate changes than Bond 1. To verify this, we calculated the values of the bonds at yields of

both 5% and 6% in cells B14:C15 using the PRICE function we’ve discussed in the two previous Spread-sheet Corner articles. Increasing the yield by 1% led to a 12.08% drop in price for Bond 1 and a 13.75% decline for Bond 2. So, Bond 2 is more sensitive to changes in yield, as its duration indicated. Using this template, you can see the impact on dura-tion when changing the coupon rates and maturity dates.

Modifi edDuration

A variation on Macaulay’s duration is modifi ed dura-tion, which is a price sensitivity measure that is the percentage derivative (rate of change) of price with respect to yield. Referring back to our previous example, we see that the Macaulay duration approximates the percentage change in the bond’s price. Changing the yield from 5% to 6% caused a 12.08% price decline for Bond 1, whereas its duration is 13.47 years. Therefore, the Macaulay duration can be used to estimate the percentage change in the value of a bond for a 1% change in interest rates.

Because they affect yield, fl uctuat-ing interest rates will affect duration, so the modifi ed duration shows how much the duration changes for each percentage change in yield.

The modifi ed duration is calculated as follows:

DMod = DMac ÷ (1 + YTM ÷ m)

Where:• DMac = the Macaulay duration• YTM = yield to maturity • m = the payment frequency

(number of coupon payments per year)

Excel has a built-in function called MDURATION to calculate the modi-fi ed duration:

MDURATION(settlement,maturity,coupon,yld,frequency,basis)



• Maturity is the bond’s maturity date;


• Yld is the bond’s annual yield;• Frequency is the number of

coupon payments per year—for annual payments, frequency = 1; for semiannual, frequency = 2; for quarterly, frequency = 4; and

• Basis is the type of day count

Figure 2. Calculating Predicted Price Change for a Change in Yield

SpreadsheetCorner


Using the modifi ed duration, we can approximate the percentage change in a bond’s price for a change in yield:

% Change in Price -DMod × YTM

In Figure 2, we replicated this for-mula in cell B22, this time assuming that the yield increased from 5.0% to 5.1% (cells A14:A15):

=–B20*($A15-$A14)

For Bond 1, the predicted price change for this 0.1% increase in yield is a drop of 1.30% (cell B22, which equals the percentage change in cell B17). The same goes for Bond 2 when comparing cell C22 and cell C17.

A Visual Representation

As we mentioned earlier, modi-fi ed duration only works for small changes in the yield since it is a linear approximation to a nonlinear function. Modifi ed duration is equal to the partial derivative of the price function with respect to the yield, divided by the price of the bond. The slope of any bond value/yield curve can be calculated by multiplying the

basis to use (typically 0 for U.S. bonds).

If this function is not available, and returns the #NAME? error, you can download and install the Analysis ToolPak add-in from the Microsoft Offi ce website.

Figure 1 also shows the modifi ed duration calculations for Bonds 1 and 2, using the same inputs from our example for Macaulay duration. In cell B20 we entered the following formula for Bond 1:

=MDURATION(B2,B3,B5,B6,B9,B10)

We then copied this formula to C20 to fi nd the modifi ed duration of Bond 2.

In both cases, the modifi ed dura-tion is a bit closer to the percentage change fi gures in cells B17:C17. The modifi ed duration for Bond 1 is 13.14 years and 15.05 years for Bond 2.

While the modifi ed duration offers a closer measure of the percent-age change in the bond’s price for a change in yield, it is still only accu-rate for small changes in yield. This is because duration is a linear approxi-mation to a nonlinear function (more on this a little later).

modifi ed duration by the price of the bond, such that:

Slope = DMod × P = Rise ÷ Run

Figure 3 illustrates the price/yield curve of Bond 1 from our previous examples. We arrived at this curve by calculating the value of Bond 1 across a range of yields to maturity, assuming a 20-year time to maturity, 4% coupon rate paid semiannually, 5% yield and $1,000 redemption value. From cell B11, Bond 1 has a current value of $874.49, which we calculate using the PRICE function we discussed in the previous two articles (indicated by the red hori-zontal dotted line on the chart) given its 5% yield (indicated by the green vertical dotted line on the chart). By constructing a line with the same slope that is tangent to the curve at the point representing the current price and yield, we can visualize the modifi ed duration of the bond.

Figure 4 contains the data neces-sary to plot the blue tangent line in Figure 3. In cell I2 we calculate the slope of the line using the formula we provided earlier:

=MDURATION(B2,B3,B5,B6,B9,B10)*B11

We then derive three points through which the line passes. The x values are simply the three yields in cells I3:I5. The midpoint is the current yield of Bond 1, 5%, and the others are arbitrarily set three percentage points above and below. In J3, we entered the formula for the slope-intercept straight line equation (y = mx + b) where m is the slope, x is the x-intercept and b is the y-intercept):

= $I$2+$B$11*($I$4-I3)

We then copied the formula down for cells J4:J5. This shows the prices on the line with the slope that was calculated in cell I2.

We now have a visual representa-tion of modifi ed duration, which we can change by altering the yield in

Figure 3. The Price/Yield Curve of Bond 1

SpreadsheetCorner


cell B6. When the yield decreases, modifi ed duration will increase, creating a steeper line. Increasing the yield will lead to a fl atter line, which implies a lower modifi ed duration.

Convexity

As stated, using modifi ed duration to calculate the change in price for a given change in yield only works for small changes in yield. Figure 3 helps explain this. The price/yield curve is just that: curved. To be specifi c, it is convex to the origin. Comparing the straight line to that of the price/yield function, we can see how the straight line departs from the price/yield function for large changes in yield. A measure of this curvature is called convexity, which we can use to improve the approximation of the change in price. Convexity can be calculated as:

= [1 ÷ (1 + YTM)2] × [ Ct (t2 + t) ÷ (1 + YTM)t]

Where:• Ct = the cash payment received

at time t• t = the time period in which the

cash payment is received• YTM = the per period (typically

semiannual) yield to maturityAs we had to do with the Macaulay

duration, we must divide convexity by the payment frequency to convert it to an annual number.

Mathematically speaking, convexity is the second derivative of the price function with respect to the yield, divided by the price of the bond. In other words, you can think of it as the rate of change in a bond’s dura-tion. Simply put, however, it is the measure of the degree of curvature of the price/yield function presented in Figure 3. The higher the convexity, the more curved the function.

Unlike Macaulay duration and

Wayne A. Thorp, CFA, is editor of Computerized Investing and AAII’s senior fi nancial analyst. You can follow him on Twitter at www.twitter/ci_editor.

modifi ed duration, there is not a convexity func-tion built into Excel. However, we have been using the Famefncs.xlam add-in from Timothy R. Mayes, a professor at the Metropolitan State University of Denver and co-author of “Financial Analysis with Microsoft Excel” (South-Western College Pub, 2011). After downloading this add-in to your PC, you can use its FAME_CONVEXITY function:

FAME_CONVEXITY(settlement,maturity,FV,coupon,yld,frequency)



• Maturity is the bond’s maturity date;

• FV is the face or redemption value of the bond;


• Yld is the bond’s annual yield; and

• Frequency is the number of coupon payments per year—for annual payments, frequency = 1; for semiannual, frequency = 2; for quarterly, frequency = 4.

Referring back to Figure 1, we en-tered this formula into cell B21:

=FAME_CONVEXITY(B2,B3,B7,B5,B6,B9)

We then copied this formula into cell C21 for Bond 2.

The convexity of Bond 1 is 226.61 and 275.49 for Bond 2. With these values, we can improve on the ap-proximate percentage change in

price, as it now accounts for the curvature of the price/yield function. Using convexity (C), the change in price is calculated as follows:

-DMod × YTM + 0.5C × YTM2

We entered this formula into cell B22:

=-B20*($A15-$A14)+0.5*B21*($A15-$A14)^2

Comparing the Predicted % Change values in cells B22:C22 to the percentage change values in cells B17:C17, the difference is rather neg-ligible and is more accurate for larger changes in the yield.

Beyond improving the predicted percentage change in bond prices, convexity is also useful for comparing bonds of similar or equal durations. In these instances, the more convex a bond is, the more it will gain or the less it will lose if yields change. Therefore, we would prefer a bond with more convexity.

Summary

A spreadsheet containing the calculations discussed here can be downloaded at the on-line version of this article at www.computerizedinvesting.com.

Our series on bond analysis has ex-amined how to calculate the price of a bond and its yield and how to judge its sensitivity to changes in interest rates. We have put these somewhat complex concepts into templates to aid in your bond analysis.

Figure 4. Data for Constructing Modifi edDuration Chart


Feature

at the end of 1997. Through the end of February of this year, the AAII CAN SLIM screen has averaged an annual return of 24.4%, ranking it third among all AAII screens. On a risk-adjusted basis, the screen has performed equally well, with an aver-age annual return of 14.8%, which also ranks third among all AAII stock screens. The methodology’s strong performance has been enough to offset its relatively high risk: the CAN

SLIM screen has a risk index of 1.89, which means the approach carries 89% more risk than the S&P 500 large-cap index. O’Neil is not afraid of risk, and he does not mind paying high premiums for the high-growth stocks that match his criteria.

Since we are talking about a screen that has performed well on both an absolute and risk-adjusted basis, it doesn’t seem that there would be a need to revise the criteria. Most of AAII’s stock screens are backtested over a period that begins at the end of 1997, with hypothetical portfolios invested in the stocks that pass a given methodology on an equal dollar basis and rebalanced at the end of each month, with buys and sells as-sumed to be made at the month-end price. For that reason, and the fact that our backtesting results do not take into account transaction costs such as commissions and bid-ask spreads, our reported results are not achievable by individual investors. However, since we follow the same procedure for all screens, the back-testing results provide an indication

A CAN SLIM Screen WithNo Float but Plenty of Lift

By Wayne A. Thorp, CFA

of how an approach would perform over time and over varying market conditions.

Looking at the backtesting results for the original CAN SLIM screen, some cracks began to appear. Be-tween December 31, 1997, and February 28, 2013, the CAN SLIM screen has averaged seven passing companies a month. However, this only tells part of the story. While an investment strategy may look

good on paper, it must be investable in the real world for it to be useful. If you look at a rolling 12-month aver-age of the number of companies passing the CAN SLIM screen, the results are even more discouraging. Using this 12-month rolling aver-age, the original CAN

SLIM screen has had between 17 and only one company meeting the CAN SLIM criteria. Since mid-2007, no more than fi ve companies on average have passed the screen and since the beginning of 2009, no more than two companies have passed on a rolling 12-month basis. Through the end of February, our backtesting period consists of 183 months. During this period, 16 months (9%) had no pass-ing companies; 22 months (12%) had two passing companies; and 16 months (9%) had only three pass-ing companies. That means that, for nearly a third of the months of our backtesting period, three or fewer companies passed the CAN SLIM screen. Having so few stocks pass the screen makes it diffi cult for an inves-tor to build a diversifi ed portfolio.

This is not to say that having few or no passing companies cannot sometimes be to your advantage. Take for example, the fi nancial crisis of 2008—specifi cally, the bear market that began in October 2007 and ran through February of 2009. During this period, the S&P 500 lost 52.6%

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One of the most popular ele-ments of AAII membership is

the Stock Screens area of AAII.com. Here, you can track the hypotheti-cal performance of over 60 different stock investing strategies. Arguably one of the most-followed methodolo-gies is that of William O’Neil. Back in the mid-1990s, the founder of Investor’s Business Daily published the book “How to Make Money in Stocks: A Winning System in Good Times or Bad” (now in its fourth edition: McGraw-Hill, 2009). In it, he outlined an approach based on the characteristics common to “every big winning stock each year since 1953.” This approach, which he called CAN SLIM, focuses on compa-nies with a proven record of growth showing strong relative price strength and support from leading institutions. In the July 1996 issue of the AAII Journal, former editor Maria Crawford Scott outlined O’Neil’s CAN SLIM approach based on the second edition of his book. Shortly thereafter, in the July/August 1996 issue of Computerized Invest-ing, former editor and current AAII President John Bajkowski developed a stock screen based on the criteria O’Neil discussed in his book. Over the years, much has been written about the CAN SIM methodology in various AAII publications, so I won’t go into too much detail as to the sys-tem’s underlying characteristics. You can learn more about the screen and the criteria O’Neil developed by visit-ing the Stock Screens area of AAII.com (www.aaii.com/stock-screens).

The “Original” CAN SLIM

The CAN SLIM approach has been a strong performer on both an absolute and risk-adjusted basis over our backtesting period, which began

“While an investment strategy may look good on paper, it must be investable in the real world for

it to be useful.”


(not including dividends), while the typical AAII stock screen lost over 51%. Over this 17-month period, however, the CAN SLIM screen was out of the market (did not generate a single passing company) eight of those months. Part of the CAN SLIM criteria O’Neil outlined in the second edition of “How to Make Money in Stocks” calls for a company to in-crease its earnings in each of the last fi ve fi scal years and generate average earnings per share growth of at least 25%. These criteria were enough to eliminate most companies during the brutal economic downturn that took place. Add to that the requirement that the stock price be within 10% of its 52-week high when the overall market is in freefall, and it’s no wonder few, if any, stocks were passing the screen. As a result, the hypothetical portfolio of the AAII CAN SLIM screen only lost 10.1% over that bear market period, with the next best screen losing 23.3%.

The Revised CAN SLIM

By and large, though, not having companies to invest in makes for a precarious position when pitching an investment strategy (or selling books). Perhaps for this reason, O’Neil released a third edition of “How to Make Money in Stocks” in 2002. This time, O’Neil extended his analysis of past market winners to 600 companies that performed strongly from 1953 to 2001 and revised, and in some cases relaxed, a number of CAN SLIM criteria. John Bajkowski highlighted the difference between the criteria outlined in the second and third editions of O’Neil’s book in the April 2003 issue of the AAII Journal, which is available on-line at AAII.com. Among the biggest changes O’Neil made was to require growing earnings over each of the last three years instead of each of the last fi ve fi scal years and an average

annual earnings per share growth rate of at least 25% over the last three years instead of over the last fi ve years.

For the third edition of his book, O’Neil also moved away from his previous stance that stocks with a small or reasonable number of shares will, all else being equal, usually outperform older, large-cap stocks. In his research for the second edition of his book, O’Neil found that 95% of the winning stocks had fewer than 25 million shares outstanding. However, he never quantifi es a maximum num-

ber of shares.Based on the third edition of “How

to Make Money in Stocks,” AAII de-veloped a revised CAN SLIM screen. Relaxing the criteria has had two signifi cant impacts. First, the over-all performance of the revised CAN SLIM screen was lower than that of the original CAN SLIM approach, although it still outperformed the overall market by a strong margin. Since the beginning of 1998, the re-vised CAN SLIM screen has generat-ed an average annual gain of 14.5%, versus 24.4% for the original CAN SLIM screen. The S&P 500 gener-ated a 2.6% annual price gain over the same time period. On a risk-ad-justed basis, the revised CAN SLIM screen has averaged an annual gain of 9.7% through the end of February (versus 14.8% for the original CAN SLIM screen). The second impact of the revised and relaxed criteria is a somewhat larger universe of stocks from which to choose. Between the end of December 1997 and the end of February 2013, the revised CAN SLIM screen averaged eight passing companies a month, an improvement of only one additional company over

the original CAN SLIM screen. Look-ing at the rolling 12-month average, the revised CAN SLIM ranged from 19 to only one passing company. Over the entire backtesing period, the revised CAN SLIM screen was out of the market 14 months, only two less than the original CAN SLIM screen. This, again, helped investors avoid much of the carnage of the 2008 market meltdown. Over the last bear market period, the revised CAN SLIM screen lost 27.8%, faring better than all but four of the AAII stock screens.

Confronted with a powerhouse screen with very few pass-ing companies and a revised screen with middling performance and not many more passing companies, we looked to see if there was a better way (or

at least some better middle ground). Returning to the original CAN SLIM screen, one area for change immedi-ately came to mind. As we mentioned earlier, O’Neil, in the second edition of “How to Make Money in Stocks” discussed investing in stocks with a limited number of outstanding shares. However, he never quantifi ed a limit. AAII’s original CAN SLIM screen borrowed from research done by Marc Reinganum and published in the September 1989 issue of the AAII Journal, which found that stocks with big price movements had a relatively small number of shares outstanding, and set a cut-off at 20 million shares. Based on this research, the original CAN SLIM screened for a maximum of 20 million shares outstanding; this criterion was later changed to fl oat when the data fi eld was added to AAII’s Stock Investor Pro pro-gram, which is the platform used in developing all of our screens. Float is the total number of shares pub-licly owned and available for trading and is calculated by subtracting the number of shares owned by insiders from the total number of outstanding shares.

“Our ‘no fl oat’ screen did improve upon the performance of the revised

CAN SLIM methodology.”


Feature

Ann’l Avg. Risk- Val No. Price Gain (%) Adj*** of $1K Passing 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD** (%) Invest.*** Stocks***

CAN SLIM* 79.0 (3.8) 24.1 29.5 30.4 (10.5) 97.3 (9.6) (10.2) 18.0 12.1 14.8 $30,764.78 7 CAN SLIM No Float* 55.8 8.2 13.3 12.8 35.4 (49.7) 36.9 20.6 (3.9) 8.9 6.8 12.5 $9,874.94 16 CAN SLIM Rev. 3rd Ed.* 74.7 (2.6) (1.0) (5.4) 31.4 (26.3) 16.8 42.7 (30.1) 7.3 9.5 9.7 $8,516.89 8 S&P 500 26.4 9.0 3.0 13.6 3.5 (38.5) 23.5 12.8 0.0 13.4 6.5 2.6 $1,565.03 --All Exchange-Listed Stocks 81.1 22.8 4.5 17.2 (4.5) (46.3) 65.8 26.2 (12.3) 14.8 7.6 7.8 $4,085.91 --

*Price performance of hypothetical portfolio rescreened and rebalanced monthly using month-end closing prices and no transaction costs.**Data as of February 28, 2013.***From December 31, 1997, through February 28, 2013.

Figure 1. Performance of CAN SLIM Approaches vs. Benchmark (Through 2/28/13)

A “No Float” Strategy

Including a maximum shares out-standing/fl oat criterion to the CAN SLIM screen was a bone of conten-tion with some CAN SLIM devotees and was one not explicitly laid out in O’Neil’s book. Therefore, we decided to test the original CAN SLIM screen

without the fl oat requirement to see what impact it would have.

While the overall performance pales in comparison to the original CAN SLIM screen, our “no fl oat” screen did improve upon the per-formance of the revised CAN SLIM methodology. Figure 1 shows a semi-log chart of $1,000 invested in all

three CAN SLIM screens at the end of 1997. Assuming monthly rebalanc-ing at month-end closing prices, and ignoring the impact of transactions costs, $1,000 invested at the end of 1997 in the “no fl oat” CAN SLIM approach would have turned into $9,875 by the end of February of this year. This is nearly 16% better


Feature

than the revised CAN SLIM screen, which would have turned $1,000 into $8,517. However, the original CAN SLIM screen is still the overwhelm-ing winner, as it would have turned $1,000 into $30,765. By means of comparison, $1,000 invested in the S&P 500 at the end of 1997 would have grown to $1,565 (excluding dividends).

Figure 1 also shows the perfor-mance of the three CAN SIM screens for the last 10 years and for the year-to-date. On a risk-adjusted basis, the CAN SLIM No Float screen has aver-aged an annual gain of 12.5%, best-ing the revised CAN SLIM screen’s 9.7% risk-adjusted return. The No Float screen has a risk index of 1.39, meaning it has 39% more volatil-ity than the S&P 500. Since 1998, the CAN SLIM No Float screen has had only two down years—2008 and 2011. The screen fared far worse than the other two CAN SLIM screens in 2008 because it was not out of the market like they were. As a result, during the last bear market

the CAN SLIM No Float screen lost nearly 62% of its value, making it one of the worst-performing AAII screens over that period. During this same period, the S&P 500, excluding dividends, lost 52.6%.

However, during the bull market that started at the end of February 2009 and is ongoing, the CAN SLIM No Float screen has gained 135.9%, versus 111.8% for the original CAN SLIM screen and only 36.9% for the revised CAN SLIM approach. Mean-while, the S&P 500 is up 106.5% over the same period.

Beyond improving on the perfor-mance of the revised CAN SLIM method, the CAN SLIM No Float screen also has a relatively greater number of passing companies. Since the end of 1997, the screen has averaged 16 passing stocks a month, which is at least double that of the other CAN SLIM screens. The maxi-mum number of stocks passing in a single month was 53 and in only one month did no stocks pass (February 2009). Again looking at the roll-

ing 12-month average, the No Float screen had between three and 28 stocks passing. In only 12 months out of the 183 in the backtesting period did three or less stocks pass.

Table 1 lists the 12 companies passing the CAN SLIM No Float screen as of February 28, 2013. The list is ranked in ascending order by the stock’s fl oat. Only three of the 12 companies would have passed the original CAN SLIM screen, with its requirement for fl oat to be under 20 million shares.

Conclusion

The three stock selection method-ologies, at their heart, look for com-panies with strong earnings growth and price momentum. Making some slight, and not-so-slight, changes to the selection criteria can have a signifi cant impact on the overall performance of the strategy. In the end, a screen that is truer to William O’Neil’s second edition of his book “How to Make Money in Stocks” outperforms the approach put forth in the third edition of his book, both on an absolute and risk-adjusted basis, while offering a deeper pool of candidates.

Wayne A. Thorp, CFA, is editor of Computerized Investing and AAII’s senior fi nancial analyst. Follow him on Twitter at @AAII_CI.

% Rank Price as EPS EPS EPS EPS Avg Rel % of No. Cont-Grth Cont-Grth Grth Cont-Grth Float Shrs Strgth 52-Wk Inst Inst Q5 to Q1 Q6 to Q2 Est 5 Yr # Shs Q1 52-Wk High Own Own Company (Ticker) (%) (%) (%) (%) (Mil) (Mil) (%) (%) (X) (%) Description

Home Federal Bancorp of LA (HFBL) 50.0 28.6 NA 38.5 1.8 2.4 81 97 13 57.6 bank holding co.Century Bancorp, Inc. (CNBKA) 22.9 8.4 NA 28.8 3.6 5.5 83 93 73 56.4 bank holding co.Credit Acceptance Corp. (CACC) 26.0 10.9 NA 37.2 10.0 24.8 71 94 131 33.5 auto loansFirst Cash Financial Services (FCFS) 34.7 15.0 20.0 25.0 27.5 28.5 80 95 211 88.0 pawn & cash shopsElectronics For Imaging (EFII) 376.0 123.1 NA 29.9 45.6 47.6 87 98 172 95.0 indus’l printingSolarWinds Inc. (SWI) 36.4 3.4 21.0 34.5 62.2 74.6 89 93 311 86.5 IT mgmt softwareValueClick Inc. (VCLK) 41.2 (37.8) 12.3 25.4 71.7 75.2 81 97 267 96.6 digital marketingKAR Auction Services Inc. (KAR) 45.5 (39.1) 10.8 31.0 76.0 139.6 83 95 131 51.4 vehicle auctionsLear Corporation (LEA) 774.8 31.6 9.5 52.7 95.4 97.9 74 95 335 95.4 auto mfr supplierEl Paso Pipeline Partners, L.P. (EPB) 21.6 19.6 7.4 112.2 129.6 216.0 71 97 247 40.8 natural gas facilitiesSally Beauty Holdings, Inc. (SBH) 106.3 20.0 17.2 38.4 174.4 178.3 73 98 303 NA beauty suppliesSirius XM Radio Inc. (SIRI) 500.0 (50.0) 29.0 27.8 3,170.7 5,218.8 85 96 537 29.3 subscription radio

Source: AAII’s Stock Investor Pro/Thomson Reuters. Data as of February 28, 2013.

Table 1. Companies Passing CAN SLIM No Float Approach

The Sortino Ratio

In the last couple of installments of Fundamental Focus, we have discussed risk-adjusted performance measures, namely the Sharpe and Treynor ratios (these articles ap-peared in the Fourth Quarter 2012 and First Quarter 2013 issue, re-spectively, and are available online at ComputerizedInvesting.com).

Both ratios assess a money manag-er’s ability to generate excess return per unit of total risk. Where the two ratios differ is in their risk measure. Sharpe’s original work focused on total risk, as measured by historical standard deviation of returns, where-as Treynor used systematic or market risk, as measured by the portfolio’s beta. These articles spurred many reader comments, some of which pointed out that these risk measures handle upside and downside risk equally. However, most investors are only concerned with the downside risk (few will complain if their port-folios are rising in value!).

Several fi nancial measures have been developed that attempt to measure the downside risk of an asset without penalizing an asset or strategy with large positive perfor-mance deviations. One of them is the Sortino ratio.

Sortino Ratio vs.Sharpe Ratio

The Sortino ratio, named after Frank A. Sortino, measures the risk-adjusted return of an individual asset or a portfolio, as do the Sharpe and Treynor ratios. However, it only concerns itself with returns that fall below a user-specifi c minimum or required rate of return (minimum accepted return, or MAR). In other words, it measures the excess return against the risk of not meeting the minimum return. This differs from the other risk-adjusted return mea-sures we’ve discussed lately, which treat upside and downside volatility

equally.The Sortino ratio overcomes the

shortcomings of the Sharpe ratio, namely, that it relies on standard deviation, which assumes that returns have a normal or symmetrical dis-tribution, and that it uses the mean return as a target return.

The Sortino ratio avoids these downsides by, fi rst, incorporating a relative target rate of return instead of simply using the average return, and, secondly, by quantifying down-side volatility without penalizing upside volatility.

That is not to say that the Sortino ratio is perfect. In researching this article, we ran across multiple ver-sions of the calculation, with differ-ing downside deviation calculations. Some methods consider all periodic returns, changing any returns that exceed the minimum accepted return to zero, and then calculating the standard deviations across all returns. However, there is an argument that using zeros in the calculation under-estimates the volatility. The other option is to ignore any positive excess returns and calculate the standard de-viation of only the negative returns. The argument here is that since the Sortino ratio is intended to measure downside risk, this seems to capture the spirit of what Sortino was trying to accomplish.

Calculating theSortino Ratio

The Sortino ratio is calculated as follows:

S = R – T DR

Where:• R is the realized return of the as-

set or portfolio,• T is the minimum accepted re-

turn (MAR) and• DR is the downside deviation as

measured by the standard devia-tion of negative asset or portfolio returns.

Figure 1 presents two forms of the Sortino ratio for two different assets (a copy of this spreadsheet is avail-able online). The calculations differ in their handling of excess returns. The fi rst (Sortino 1) simply changes positive excess returns to zeros, while the other (Sortino 2) only uses nega-tive excess returns in the calculation of downside risk.

For both assets, our minimum accepted monthly return is 0.8%, which approximates a 10% annual return (1.00812 – 1). To calculate the downside risk, we use the lower par-tial second moment of the data with respect to zero. In layman’s terms, we calculate the square root of the aver-age squared distance of the realized return from the MAR. For Sortino 1, we square the lesser of zero and the negative excess return for each month, add the results together, di-vide the sum by 12 and then take the square root of the average. However, for Sortino 2, we only square the negative excess returns and calculate the square root of the average, using 5 for Asset 1 and 10 for Asset 2. These are the number of months that Asset 1 and Asset 2 had negative excess returns, respectively.

From Figure 1, we can see the im-pact on the downside risk of includ-ing zeros for those months where the excess return is positive versus using only the negative returns. For both assets, using zeros lowers the down-side risk. The impact on the down-side risk for Asset 1 was much more pronounced than for Asset 2, which had twice the number of months where the excess return was nega-tive. Sortino 1’s downside risk was 35% lower than that of Sortino 2 for Asset 1.

For both assets, the average excess return was simply the difference between the average monthly return and the minimum accepted return. Here, we used all 12 months for both Sortino calculations. Using only nega-tive excess returns impacts only the downside risk (denominator) of the

This column covers fundamental analysis, which involves examining a company’s fi nancial statements and evaluating its operations. The analysis concentrates only on variables directly related to the company itself, rather than the stock’s price movement or the overall state of the market.


Sortino ratio’s calculation.Finally, the Sortino ratio

is the quotient of dividing the average excess return by the downside risk. In this example, Sortino 2 is higher for both assets, as the higher downside risk in the denominator lowers the overall value. Some argue that using only the number of returns that fall below the MAR in calculating the average of the sum of the squared deviations, as we did for Sortino 2, may signifi cantly underestimate downside risk. Compar-ing Asset 1 to Asset 2, Asset 1 had much higher Sortino ratio values, due to the higher average excess return, which in turn led to lower downside risk.

Interpretation

Calculating a Sortino ratio for a single asset or port-folio is meaningless. Like the Sharpe ratio, the Sor-tino ratio is intended to be used to compare assets or portfolios. Like the Sharpe ratio, the higher the Sortino ratio, the better the risk-adjusted performance. Therefore, in our example in Figure 1, Asset 1 has a better risk-adjusted return. If you were to compare the Sharpe ratio to the Sortino ratio of an asset or portfolio, you would get an idea of what portion of the volatility is related to outperformance versus underperformance.

Caveats

While the Sortino ratio may im-prove on some of the shortcomings found with the Sharpe ratio, it is not perfect. As we have shown, there are multiple means of calculating the

Sortino ratio, so you have to be sure you are aware of the underlying for-mula when examining the numbers.

In addition, the Sortino ratio, like the Sharpe ratio, is based on past returns and past performance is not a guarantee of future returns. However, investors can use the ratios to help forecast potential future returns.

Conclusion

The Sortino ratio is another means of calculating risk-adjusted returns. Since most investors are not con-cerned with upside volatility, it is an attractive method of comparing port-folios or investment strategies by only

taking into consideration downside volatility.

As we have shown, calculating downside risk is a more diffi cult endeavor, and the calculation you use can have a signifi cant impact on the fi nal results. Furthermore, upside volatility shouldn’t be ignored altogether, and the Sortino ratio isn’t a complete measure of risk. While upside volatility may generate im-pressive gains over time, we cannot forget that these gains are the result of taking on additional risk. Risk is a two-way street and the risk that leads to upside outperformance can, and often does, lead to downside under-performance.

Figure 1. Calculating the Sortino Ratio

This spreadsheet can be downloaded at the online version of this article at www.computerizedinvesting.com.



comparison

SIPC insures up to $500,000 per bro-kerage customer, including a maxi-mum of $250,000 for cash claims.

To participate in our broker survey, visit www.aaii.com and select Surveys from the Quick Links tab. The survey is open year-round, and we look forward to your input.

What Investors Look For

AAII’s Broker Survey also provides some insight on what our members are looking for in an online discount broker. The overwhelming major-ity responded that commissions are the primary factor when selecting a broker, with services and convenience placing second and third, respec-tively. As a secondary factor, respond-ers mentioned convenience the most, with commissions and services plac-ing second and third.

Comparing the Brokers

Each of our top online brokers has its own strengths and weaknesses, though their offerings are not far apart. Still, there are several impor-tant items to keep in mind when considering a broker.

Trading PlatformFor do-it-yourself investors, the

trading platform is an essential con-sideration. Most online brokers offer two separate trading platforms—one for regular users and one for “power” users. It should be noted, however, that Vanguard does not have an ac-tive trading platform.

Online Discount BrokersBy Z. Joe Lan, CFA

Trading platforms for regular users are all relatively similar. Web-based platforms are used by each of the brokers in this comparison, and they can handle stocks, mutual funds, exchange-traded funds (ETFs), op-tions and bonds. To execute a trade, users need to specify the action type, number of shares, ticker symbol, order type and order duration. Each broker allows you to place market and limit orders, and each usually also offers to handle stop, stop-limit and trailing stop orders. In addition, users can select whether the order is good until cancelled or only good until the end of the trading day.

Where the brokers differ is in their trading platforms designed for power users. Power users are defi ned as investors who either have a large portfolio size or make a large number of trades in a period. These users are given access to a broader array of trading tools, such as real-time price quotes and volume data. In addi-tion, most will offer more advanced investing tools, such as the ability to backtest or chart technical indicators.

Cost per TradeAAII’s broker survey provided a

useful piece of insight—members who use discount brokerages still mention commissions as the pri-mary factor when choosing a broker. Therefore, it may be benefi cial to take a moment to discuss the differ-ences in cost between the various online discount brokers. Since most online brokerages offer trades for under $10, cost is no longer much of a concern. Recently, however, an increasing number of deep-discount brokerages with respectable features and capabilities have popped up. Though none of the deep-discount brokerages made it into the top fi ve on the AAII member ranking, there is no doubt that these types of broker-ages are viable options. In fact, one deep discounter, Interactive Brokers, places seventh in terms of popularity.

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Online Discount Broker Survey and detail the results on our website at www.aaii.com/brokersurvey. Mem-bers who participate in the survey are asked to fi ll out a questionnaire re-garding broker reliability and quality, along with individual questions con-cerning investor trading frequency, securities traded and portfolio size.

The survey results for 2012 are shown in Table 1. The fi ve brokers that our members used the most were Scottrade, Fidelity Investments, Charles Schwab, TD Ameritrade and Vanguard. Vanguard replaces E*Trade Financial this year as the fi fth most widely used broker by AAII members. In fact, Vanguard saw a big jump in use this year, while E*Trade slid signifi cantly.

There is no obvious reason for the sudden decline in E*Trade’s use by our members; however, in early 2012, E*Trade did admit that it had to shut down services due to an offshore cy-ber attack, which left some customers without access to their accounts for up to two weeks. Although no level of security is completely safe, the top online brokerages all use high-level encryption (typically bank-level en-cryption) that is extremely diffi cult to break. All online brokerages dedicate a portion of their websites to explain-ing the measures they use to protect your assets and transactions, and it is worth your time to fi nd and read through this information. In addition, when choosing a broker, make sure it is insured by the Securities Investor Protection Corporation (SIPC). The

Table 1. Ratings of Most Popular Brokers Among AAII Members

Usage by Rating (Top Score = 4)2012 Respondents Trade Execution Trade TradeRank Broker (%) Price Speed Reliability Satisfaction

1 Scottrade 16.9 3.23 3.51 3.51 3.37 1 Fidelity Investments 16.9 3.27 3.46 3.65 3.57 2 Charles Schwab 16.7 3.07 3.46 3.44 3.48 3 TD Ameritrade 15.3 2.96 3.22 3.19 3.23 4 Vanguard 7.6 3.41 3.51 3.46 3.59

(continued from page 1)


comparison

and complete orders and current positions, plus a watchlist. A perfor-mance graph is also available that allows investors to see short-term performance.

Scottrade provides a wealth of research information for account holders. Simply type a ticker symbol in the “Detailed Quote” box to pull up research information on individual stocks. The summary tab offers the latest company news and presents the upcoming dividend payment information. In the fundamental tab, data elements are broken down into several categories—profi tability, valu-ation, fi nancial strength and manage-ment effectiveness, just to name a few. In addition, Scottrade presents median fi gures for company peers and the industry average for each of the data points offered. The broker also offers earnings data going back seven quarters and offers estimates for two upcoming quarters. Annual and quarterly fi nancial statement data is provided for the past fi ve periods.

Scottrade offers some simple technical analysis capabilities. After clicking on the charts tab from the summary page, users can specify the type of investor they are—long-term investor, medium-term investor, medium-term trader, short-term trad-

Investors making frequent smaller trades may want to consider these deep-discount brokerage services.

For example, consider a service such as Interactive Brokers that charges $0.005 per share with a minimum of $1.00 per trade and maximum of 0.5% of trade value. In other words, this broker allows you to trade up to 200 shares of any stock for $1.00, which is especially useful for investors looking to start a portfolio of a large number of stocks with limited funds. For instance, an investor looking to invest $25,000 into AAII’s Model Shadow Stock Portfolio might turn to an online discount brokerage such as Scottrade that charges $7 per trade. To keep the calculation simple, let us assume that the Model Shadow Stock Portfo-lio has 25 holdings (it currently holds 29). In order to invest equal amounts in 25 different stocks with $25,000, each holding must be $1,000. At $7 per trade, each buy and subsequent sell would equate to a 1.4% com-mission per trade. Using Interactive Brokers, each buy and sell would only be 0.2% (assuming each trade is 200 shares or less).

Research Data and ToolsThe top online brokers all provide

fundamental data and research tools to investors looking to perform due diligence before purchasing an invest-ment holding. Their data is compre-hensive and typically comes from trusted data sources, such as Morn-ingstar and Thomson Reuters.

The top online brokers all offer some form of charting with the abil-ity to do simple technical analysis. At the very least, price and volume data is provided, and chart options typically include line, open-high-low-close and candlestick. The best brokers also offer the ability to plot several stocks on a single chart and to add technical indicators. One interesting feature to look for is the ability to chart company events, such as dividends and earnings, to see how the stock price has reacted to these events.

Financial statement data is also provided by all the brokers that are reviewed in this article. In addition, earnings data going back several pe-riods, insider activity and consensus earnings estimates going forward are all offered.

A myriad of investment tools are also available at the broker websites. The top brokers all offer some level of screening capabilities, as well as tools to help users examine their portfolios as a whole.

The Top Brokers

The top online discount brokers differ in what they offer beyond basic screening and simple portfolio tracking tools. I discuss the specifi c features of each below.

ScottradeFor the third year in a row, Scot-

trade placed at the top of our list for most frequently used online discount brokerage fi rm. However, this year Scottrade had company, tying with Fidelity for the top spot, with each broker taking 16.91% of the votes.

The main Scottrade page lists the most vital information on your portfolio such as account value, funds available for trading, open

Scottrade SmartText


comparison


COMPARISON: ONLINE DISCOUNT BROKERS

Online Discount Brokerage Firm Web Address Traditional Additional Order TypesTrading Tools Order Routing (Automatic, User-Defi ned) Alerts (Price, Volume, News) Automatic Trade TriggersActive Trading Active Trading Platform (Cost)Tools Securities Traded Order Routing (Automatic, User-Defi ned) Alerts (Price, Volume, News) Demonstration of UseStock Tools Quotesand Data Ratios Financials SEC Filings EPS Estimates Research Reports and Ratings News Industry Data Charts Technical Indicators Screening (Number of Companies/Fields) Historical PricesMutual Fund Data ProviderTools and Data Ratings Risk Statistics Calendar Performance Annualized Performance Compare to Index/Category Fund Holdings Charts Technical Indicators Screening (Number of Funds/Fields)ETF Tools and RatingsData Risk Statistics Calendar Performance Annualized Performance Holdings Technical Indicators Screening (Number of ETFs/Fields)Portfolio QuotesTracking Tools Portfolio Analysis Tools WatchlistsDividend DRIP OfferedReinvestment Fractional SharesPlan Dividend Reinvestment Fee (Cost)Other Tools Mobile Trading Roth IRA Conversion Calculator Retirement Tools Online Banking

Charles Schwabwww.schwab.comshort sell, stop, stop-limit, trailing stop, day, good-till-canceledautomatic✔

✔ (via StreetSmart Pro)StreetSmart Pro 4.22 (free for active traders)stocks, ETFs, optionsautomatic; user-defi ned✔ (price, volume)✔

real-time (manual refresh)✔ ✔ (5 years; 5 quarters) ✔ (Reuters)✔ (Schwab; various brokers)✔ (Dow Jones, Acquire Media)✔

✔

✔

✔ (6,500+/75+)✔ (1998+; daily)Morningstar✔ (Morningstar)✔ (beta, alpha, std dev, Sharpe, mean)YTD; 5 years; 1 quarter; 1 month1-, 3-, 5-, 10-yr; inception ✔

✔

✔

✔ (20,000+/25+)✔ (Schwab report card; Morningstar) 1 quarter1-, 3-, 5-year; inception✔

✔

✔ (900+/50+)real-time (manual refresh)✔ (asset type, sector)✔

✔

✔

✔ ✔

✔

✔

Fidelity Investmentswww.fi delity.comshort sell, stop, stop-limit, trailing stop, day, good-till-canceledautomatic✔ (price & news) Active Trader Pro (free for active traders)stocks, mutual funds, ETFs, optionsautomatic, user-defi ned✔ (price)✔

real-time (manual refresh)✔

✔ (5 years; 5 quarters)✔

✔ (StarMine SmartEstimate)✔ (AGR Ratings; various brokers)✔ (CNN Money, MarketWatch, Reuters)✔

✔

✔

✔ (9,000+/100+) Morningstar✔ (Morningstar)✔ (beta, R-sq, std dev)YTD; 1 quarter; 1 month1-, 3-, 5-, 10-year✔ (category only)✔

✔ (12) ✔ (beta, R-sq, std dev, Sharpe)1 quarter1-, 3-, 5-yr; inception✔

✔ (900+/20+)real-time (manual refresh)✔ (asset type)✔

✔

✔

✔ ✔

✔

✔

ing or intraday trader—and the price chart will be tailored to the chosen type, presenting the appropriate tech-nical indicators. Scottrade also allows users to chart events, such as earn-ings and dividends. Users can com-pare one stock to other stocks and major indexes, as well as to market sectors, fi xed income, commodities and currency rates, all on the same

chart. A new feature integrated into Scottrade’s technical analysis capa-bilities is SmartText, which explains the information shown on the charts in “plain English.” An example of Scottrade’s SmartText is shown in the fi gure on page 23.

Research reports are often of central importance for individual investors. Different brokers typically

offer different research reports. Scot-trade provides the full S&P Capital IQ Stock Report, Thomson Reuters StockReport+ and Second Opinion Weekly Report.

The analyst views section shows S&P star ranking and Briefi ng.com rating changes for securities. A chart details the ratings changes and links to a PDF fi le giving the reason for the


comparison


Scottrade www.scottrade.comshort sell, stop, stop-limit, trailing stop,day, good-till-canceled, good-until-dateautomatic✔

ScottradeELITE (free for accounts of $25,000+) stocks, ETFs, optionsautomatic✔ (price, news)✔

real-time (manual refresh; streaming via Scottrader)✔


✔ (Reuters)✔ (S&P, Reuters, Second Opinion Weekly)✔ (BusinessWire, Dow Jones, PR Newswire)✔

✔

✔

✔ (9,000+/30+) Lipper✔ (Lipper) YTD; 1 month; 1 quarter1-, 3-, 5-, 10-yr; inception✔

✔

✔

✔

✔ (20,000+/22)✔ (Lipper) YTD; 1 month; 1 quarter1-, 3-, 5-, 10-yr; inception✔

✔

✔ (900+/18)real-time (manual refresh) ✔

✔ (mutual funds only)✔ (mutual funds only) ✔ ✔

✔

TD Ameritradewww.tdameritrade.comshort sell, stop, stop-limit, day, good-till-canceledautomatic; user-defi ned✔

✔

Trade Architect (free); thinkorswim (free)stocks, ETFs, optionsautomatic; user-defi ned✔ (price, volume)✔

real-time (manual refresh)✔


✔ (Reuters)✔ (various brokers)✔ (MarketWatch, Marketwire, PR Newswire)✔

✔

✔ ✔ (11,000+/45+)✔ (1989+; daily)Morningstar✔ (Morningstar)✔ (beta, alpha, R-sq, std dev, Sharpe, mean)YTD; 4 years; 1 quarter; 1 month1-, 3-, 5-, 10-yr; inception ✔

✔

✔ (20,000+/35+)✔ (Morningstar)✔ (beta, alpha, R-sq, std dev, Sharpe, mean)4 years; 1 quarter1-, 3-, 5-, 10-yr; inception ✔

✔ ✔ (900+/40+)real-time (manual refresh)✔ (asset type)✔ ✔

✔

✔ ✔ ✔ ✔

Vanguardwww.vanguard.comshort sell, stop, stop-limitday, 60-dayautomatic✔

nonen/an/an/an/adelayed 20 minutes✔

✔ (4 years; 4 quarters) ✔ (Reuters)✔ (various brokers)✔ (Reuters, BusinessWire)✔

✔

✔

✔ (8,700/20+)✔ 10 years; daily)Morningstar✔ (Morningstar) YTD; 1 month1-, 3-, 5-, 10-yr; inception ✔

✔

✔ (S&P, First Call Consensus, Thomson Reuters) real-time (manual refresh)✔ (asset type)✔

✔

✔ (funds only) ✔

✔

✔

✔

change. A service that Scottrade added

recently is personal banking. Scot-trade now offers checking, savings and money market accounts as well as online bill pay service. In addition, since Scottrade does not have ATM machines, the company will reim-burse you for fees you are charged when using ATMs.

Scottrade provides a robust knowl-edge center (one of the best) that offers educational articles on a range of personal fi nance needs. The broker offers a tax guide that is fairly com-prehensive, providing new informa-tion yearly. In addition, retirement calculators, an IRA comparison and a life-events adviser can all be found in this area.

Fidelity InvestmentsAfter a few years in the number

two spot, Fidelity tied with Scottrade in 2012 as AAII members’ most fre-quently used online discount broker.

After logging into the Fidelity web-site, you are given a listing of your accounts, along with subtotals for each and a total portfolio value.

Several tabs are available on the


comparison

main page. The portfolio positions tab breaks down your holdings and presents all the usual data for each, including per share and total cost ba-sis and dollar and percentage change since purchase. Fidelity also offers BillPay, which, as the name suggests, enables you to pay bills directly from your Fidelity brokerage account.

A quick overview of your portfolio is provided in the analysis tab. The page provides your asset allocation along with your top positions and a style and sector map. Data is bro-ken down between stock and fi xed-income holdings, providing a deeper analysis of your asset allocation. In the ratings sub-tab, Fidelity presents mutual fund ratings, equity summary scores and bond credit ratings for your current holdings.

The research section provides a quick snapshot of the tools available to Fidelity users, such as a one-year chart and the latest news and analyst

research reports. Reports are offered by First Call, Thomson Reuters, Stan-dard & Poor’s, Ned Davis, Jefferson Research and Zacks, just to name a few. This research page also provides a link to the alerts page, where users can sign up for a variety of portfolio alerts to assist in keeping on top of investments.

Fidelity also provides advanced research functionality on individual stocks. Users can draw charts by hand and plot almost 50 different technical indicators directly on the price and volume graph. Events such as dividends, splits and earnings can be charted to see how the announce-ment of each affected the share price. You may also chart the Dow Jones in-dustrial average, NASDAQ compos-ite index or S&P 500 index and up to 25 other companies on the same chart. A separate technical analysis section presents short-, medium- and long-term technical signals for each

company.Another useful feature Fidelity

offers is the ability to compare up to fi ve companies side by side. Users can choose to compare key statistics, dividends, valuation measures, per-formance and volatility data, growth fi gures, profi tability ratios, cash and debt numbers, ownership and trading characteristics, and intraday price and volume data.

Fidelity’s news & insights area provides the most comprehensive news area of the brokerages that are reviewed in this article. The news section is divided into U.S. markets, U.S. economy & jobs, technology, international, company news, IPOs, mergers & acquisitions and invest-ment ideas. A separate page of news videos is also offered. Furthermore, the news sources are top fi nancial websites such as MarketWatch, CNN Money and Reuters. The insights section provides analysis on recent market trends and areas where you might fi nd growth.

Several tools on the site are worth highlighting. The Fidelity Income Strategy Evaluator is a useful retire-ment planning tool. The program asks you to input a general idea of your income and expenses in retire-ment, information about accounts held elsewhere that will be included as retirement assets and your current pretax income. The tool then pro-vides an estimation of your monthly income based on your holdings. A suggested target income mix is pro-vided that takes into consideration your needs and preferences. Further-more, an idea of how your portfolio will perform in both bull and bear markets is displayed. A screening tool is also offered for stocks, preferred securities, ETFs and closed-end funds.

Charles SchwabCharles Schwab implemented a

completely new look and feel for its brokerage page since last year’s re-view. The current home page is much cleaner, simply offering the value for each account and daily change. The

Fidelity Investments


comparison

accounts area provides all relevant information for the current holdings in your account, including balances, positions, performance and history. Additionally, the portfolio perfor-mance page shows a breakdown of your current portfolio and provides some tips: Your current asset alloca-tion is compared to your target risk profi le, and suggestions are made as to what you can do to bring your current asset allocation more in line with your target. Your target alloca-tion can be changed by answering a quick questionnaire on your investing traits. Furthermore, you can see a breakdown of your portfolio’s diver-sifi cation and equity concentration. The quality section provides ratings for each of the holdings in the port-folio. Yellow exclamation points are displayed in potential problem areas. Otherwise, a green “ok” is displayed.

Using Charles Schwab’s Web-based platform to trade stocks is very simple, but in previous reviews, we noticed that the order page lacked price and volume information which, in our opinion, is vital to know, espe-cially for smaller-cap stocks. During the year, though, Charles Schwab has rectifi ed the omission and now the order page provides bid and ask prices, as well as volume.

Transfers & payments is a separate section in the accounts area. This section allows users to transfer and wire funds, request checks, pay bills and add external accounts. You may also manage external accounts in this section, though we were unable to test this feature.

The scope of the market research data available at Charles Schwab continues to be very international. Global research is provided by Credit Suisse and includes reports for vari-ous global industries. International performance data is available for a number of countries and regions. Charles Schwab also provides asset allocation guidelines for international investing. Furthermore, a number of high-quality research reports are available for domestic industries and sectors, including from notable

analysts such as Argus Research, JPMorgan, Briefi ng.com and Ned Davis. Charles Schwab also provides its own research reports.

Charles Schwab offers a variety of methods for researching and choos-ing individual stocks, including a stock screener, company fundamen-tal research data, expert advice and stock lists that show top-rated stocks by sector, asset class and Schwab Equity Ratings. The stock screen provides a universe of just over 6,500 domestic stocks and international stocks (as ADRs, or American depos-itary receipts). Charles Schwab pro-vides screeners for both mutual funds and ETFs. Fundamental research on mutual funds and ETFs is extensive, rivaling that offered for stocks. Fund comparisons present mutual fund scorecards side by side. In addition, funds can be compared by perfor-mance and Morningstar ratings. The Schwab Mutual Fund Report Card,

free for customers, is a two-page re-port that provides extensive research information for a mutual fund.

Charts are comparable to the other top brokerage websites, allowing users to compare a fi rm against other companies, sectors and indexes going back 10 years. A twist that Schwab offers is the charting of fundamental indicators, such as rolling dividend yield, price-earnings ratio range and rolling earnings per share. Users can also draw trendlines and crosshairs by hand. In addition, Schwab also al-lows users to chart momentum, trend and volume indicators.

TD AmeritradeThe TD American main page

remains the same as last year, with portfolio positions and account bal-ances presented on the home page, along with your watchlist, order sta-tus, messages and the major domestic indexes. The positions “heat graph”

Charles Schwab


comparison

shows how your positions fared dur-ing the day in your overall portfolio.

When purchasing shares, TD Amer-itrade allows you to place conditional orders, which allows you to combine multiple orders. For example, you can set a condition where execution of the fi rst order will prompt cancel-lation of the second order, or where execution of the fi rst order prompts execution of the second order. TD Ameritrade is able to handle stock, ETF, options, bond, mutual fund, and even futures and forex (foreign exchange) trades.

The brokerage also provides a wealth of investment research. The market overview section is separated into fi ve distinct sections: U.S. mar-kets, global markets, commodities, currencies and fi xed income. A cal-endar is presented on the right-hand side of the page that shows economic events, dividends, splits, earnings, IPOs and ratings changes. Sector

outlooks are provided by Standard & Poor’s.

TD Ameritrade offers ana-lyst reports from Credit Suisse, TheStreet.com, Standard & Poor’s, Ford Equity Research, MarketEdge and Jaywalk Consensus for individual stocks. Additionally, the broker offers ResearchTeam reports, which provide company ratings based on a combi-nation of the reports offered by fi ve third-party research teams.

The technical analysis capabilities provided by TD Ameritrade are simi-lar to those offered by the other top brokers, including a variety of chart-ing types and upper and lower indica-tors. Users can compare companies and chart events such as earnings, dividends and splits.

The valuation tab offered at TD Ameritrade is relatively unique. This area of the website allows users to compare the valuation measures, profi tability ratios, dividend ratings,

growth rates, effectiveness gauges and fi nancial strength fi gures for a company against its industry, the overall market or competitors.

In addition to screeners for stocks, mutual funds and ETFs, TD Ameri-trade also offers an options screener. The options screener is simple, but allows you to specify search criteria such as the strategy type (covered call and calendar spread are the only two options), whether the strategy is in-the-money, downside protection values and days-to-expiration. If you are a frequent options trader, it may be worth taking a look at this feature.

TD Ameritrade offers one of the best sets of trading tools available on the Web. In addition to its regular trading platform, which caters to serious fundamental investors, the website offers Trade Architect, aimed at active investors, and thinkorswim, which targets sophisticated active investors. Trade Architect is a Web-based trading platform. It offers several advantages over the regular trading platform, such as visual posi-tion profi t/loss analysis and stream-ing Dow Jones and CNBC news. The thinkorswim trading platform needs to be installed on your computer. However, it offers the ability to trade complex options, futures and forex. You are also able to perform paper trades.

Beyond trading tools, TD Ameri-trade also offers several investment tools designed to assist investors in building and maintaining a suitable portfolio. Portfolio Planner helps you set up a target asset allocation, but the tool goes one step further and aids in choosing securities in each particular asset class. In addition, the site offers WealthRuler, a simu-lation engine for retirement plan-ning. A user enters their retirement timeline—which includes current age, when they plan on retiring and projected retirement period—cur-rent assets, future cash fl ows and tax information. WealthRuler then runs a series of simulations to determine whether the user’s retirement goals are likely to be met.

TD Ameritrade


comparison

VanguardVanguard is a complete newcomer

on our list of top brokers. In fact, E*Trade fell to a distant sixth; only 4.95% of AAII survey responders use E* Trade, compared to 7.63% for Vanguard. Like the other top brokerages, Vanguard displays ac-count information on the main page, including account balances, recent transactions, asset mix and personal performance. The main page also provides a target asset mix suggested for people in different age groups (typically more conservative for older investors).

Vanguard’s fee schedule varies de-pending on the value of assets held at the fi rm. For investors with less than $50,000, the fi rst 25 trades per year are charged $7, and the fee for sub-sequent trades is $20. For accounts valued at $50,000 to $500,000, all trades cost $7. Accounts valued at $500,000 to $1 million are entitled to $2 trades and accounts over $1 mil-lion receive 25 free trades a year with all subsequent trades charged $2.

The brokerage generates a com-prehensive portfolio analysis that presents asset allocation, stock and bond analysis, and costs, taxes and manager risk. In addition to the tar-get asset allocation recommended by Vanguard based on age, the site also uses a questionnaire to generate a more personal target asset allocation.

For individual securities, Vanguard offers a decent amount of data. Com-pany analyst reports are provided by Standard & Poor’s, First Call Consen-sus and Thomson Reuters. Financial statement items are presented for the previous four quarters and years. Going forward, Vanguard provides earnings estimates for the next two quarters and next two fi scal years. The stock screening tool, however, is very simple and investors who fre-quently rely on stock screens should probably look elsewhere.

One of the main advantages of

having a Vanguard brokerage account is being able to invest in Vanguard ETF funds without commission (most Vanguard mutual funds are no-load but charge a commission). Vanguard mutual funds typically have low expense ratios, so purchas-ing these funds through a Vanguard brokerage account keeps the costs at a minimum. Vanguard has a variety of funds to choose from that allows investors to easily diversify their portfolio internationally and across all market capitalizations.

Conclusion

Online discount brokerages have been popular with individual inves-tors now for a number of years, due to their low commissions and the convenience they provide. The top

fi ve online brokers reviewed here offer similar features. When it comes down to it, the choice may depend on individual preference for research reports, tools or customer service. Keep in mind that if you are unhappy with your broker, switching broker-ages is simple. Typically, you can call your new brokerage service and they will complete the switch for you. However, it is likely that you will be unable to trade for a few days during this process.

Recently, AAII’s Broker Survey has also shown an increase in members trading at “deep-discount” brokers, ones that charge just a dollar or two for trades. For most individual inves-tors, the added savings per trade may not be worth switching to a new bro-kerage services. However, for those looking to invest a limited amount of funds into a portfolio of many stocks, these deep-discount brokerages may be preferred. Z. Joe Lan, CFA is assistant fi nancial analyst at AAII.

Vanguard

from one period to another or the percentage change in price from one period to another. In this installment of Technically Speaking, we focus on the momentum indicator called rate

of change (ROC).The rate of change

(ROC) indicator is a pure momentum oscil-lator that measures the percent change in price over the last n periods. In other words, the indicator compares the latest price (typically the closing price) with the (closing) price n periods ago. The result-ing oscillator fl uctuates above and below the zero line, indicating shifts from positive to negative. Similar to other oscillators, ROC signals include cen-terline crossovers and overbought/oversold conditions.

Calculation

The formula for rate of change is:

ROC = [(C[0] ÷ C[n]) – 1] × 100

Where:C = closing price0 = the latest periodn = a specifi ed number of periods in the past

Figure 1 is a daily price chart for Apple Inc. (AAPL) for the period December 14, 2012, through Febru-ary 15, 2013, with the 12-day ROC plotted below the price chart (see the online ver-sion of this article for an illustration of how ROC was calculated

This column is devoted to technical analysis, which studies the supply and demand for securities based on price activity and trading volume. Charts and indicators are used to uncover patterns that may point to future price movements.

Figure 1. Price Chart and ROC for Apple Inc.

and/or growing sales, earnings, etc. In technical analysis, it is used to describe the speed or force of price movement. Common momentum in-dicators measure the change in price

Rate of Change Indicator

The term “momentum” is used frequently in investing. In funda-mental analysis, it can refer to strong

Figure 2. Price Chart and ROC for Microsoft Corp.


for AAPL over this period). When the ROC is above the zero line (positive), prices are rising. Conversely, when the ROC goes negative and crosses below the zero line, prices are falling. The stronger the momen-tum to the upside or downside, the more ROC advances into positive or negative ter-ritory, respectively. The ROC is not bounded on the upside, as there is no theoretical limit on prices. However, ROC is limited on the downside since securi-ties can only decline 100%.

Overbought/Oversold Conditions

Besides identifying the overall direc-tion of the underlying trend in a secu-rity’s price, we can also use oscillators such as ROC to identify overbought and oversold conditions. However, they work best when prices are fl uc-tuating. For example, while we have shown that Apple’s stock price has ex-perienced strong and prolonged trends over the last several years, prices do fl uctuate even when trending.

A typical uptrend consists of a series of higher highs and higher lows, with occasional pullbacks from the intermediate highs. Likewise, a downtrend generally consists of lower lows and lower highs, with retrace-ments taking place from the interme-diate lows. Following the movement of ROC as prices fl uctuate can alert us to levels that, historically, have preceded a reversal.

Figure 2 is a daily price chart for Microsoft Corp. (MSFT) for the pe-

riod June through December of 2010, along with a 20-day ROC. Depending on your charting service, you should be able to modify the number of pe-riods used to calculate the indicator. The “optimal” number of periods will depend on the security you are ana-lyzing and your desired trading time frame. Three times the ROC peaked around 13%: late July, early Novem-ber and late December. This means that MSFT shares had risen roughly 13% over the previous 20 trading days. On the fi rst two occasions, the price fell approximately 10% and 7% within a month of ROC hitting its max. While not shown in the chart, following the third ROC overbought condition in December, the price trended sideways before breaking above the December high.

Lastly, in Figure 3 we plotted Chevron Corp. (CVX) on a daily basis over a year ending February 15, 2013. Here we see where the 21-day ROC bottomed out near –10% on

three occasions in 2012; mid-April, early June and November. The fi rst time, Chevron rebounded roughly 8% over the next couple of weeks; the second time, the price rebounded roughly 23%; and the third time, where ROC reached its low a little before the shares reached their bottom, the price recouped approxi-mately 15%.

Conclusion

The rate of change (ROC) indicator shows you the speed at which prices are changing. An upward swing in ROC indicates that prices are moving upward at a faster rate. In contrast, a downward move in ROC indicates that prices are declining more rapidly. However, like all technical indica-tors, the ROC isn’t intended to be a stand-alone analysis tool. Using it in conjunction with other indicators will either confi rm the signal or prevent you from acting on a false positive.

Figure 3. Price Chart and ROC for Chevron Corp.


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computer programs and the Internet. FULL DETAILS regarding each of these groups, including when and where they meet, can be found on the chapters’ Web pages at www.aaii.com/chapters and in each chapter meeting announcement.

To receive a chapter’s meeting announcements, which include full details of subgroup activity, click on the red Sign-Up to Receive Chapter Meeting Announcements link found in the right-hand column of each chapter’s Web page (or contact AAII Member Services at 800/428-2244).

For other information about Computerized Investing groups, contact the sponsoring local chapter at the Web page or email address listed below. A complete listing of AAII local chapters can be found on the AAII website at www.aaii.com/chapters.

ArizonaPHOENIXEmail: [email protected]

• Options & Analysis• VectorVest• Stock & ETFs

CaliforniaLOS ANGELESEmail: [email protected]

• Computerized Investors Group

• UltraFS Users Group

SACRAMENTOEmail: [email protected]

• Computer SIG

ColoradoDENVEREmail: [email protected]

• Trading & Technical Analysis Group

ConnecticutCONNECTICUTEmail: [email protected]

• Computerized Investing

District of ColumbiaWASHINGTON DC METROEmail: aaiichapter_washingtondcmetro@ yahoo.com


IllinoisCHICAGOEmail: [email protected]

• Rockford Group

MassachusettsBOSTONEmail: [email protected]

• Computerized Investing• Common Stocks Education SIG

MichiganEASTERN MICHIGANEmail: [email protected]

Website:www.geocities.com/aaii_emich

• Computerized Investing• MetaStock• Managed Risk Investors

MinnesotaTWIN CITIESEmail: [email protected]

• Stock Screening

MissouriST. LOUISEmail: [email protected]

• Computer Investing

New YorkNEW YORK CITYEmail: [email protected]

• Computer SIG

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• Computer Investing• Tools & Techniques for

Investors• Technical Analysis• Mutual Fund Technical

Analysis

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editor's outlook comparison: aaii broker survey

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