(operating earnings) rather than net income. Where necessary, Baseline adjusts its earnings numbers to conform to those of widely followed publications such as Value Line or Standard & Poors. Baseline's audit process corrects for non-recurring items, discontinued operations, extraordinary items, and accounting changes. As a general rule, Baseline's adjustments conform to First Call's treatment of these items, following the lead of what the majority of broker analysts are doing with that particular company, or specific industry rules.
Answer: Everyone in this industry has access to essentially the same historical data. Most model builders select input factors and weightings by running some form of regression analysis on this information. Unfortunately, popular methodology applied to shared data inevitably leads to "me too" models (and portfolios). The only way to stand out from the pack is to bring more appropriate and powerful analytic techniques to bear.
We determine which individual return and risk factors will be included in each model, and set the weightings applied to those factors using Columbine's innovative gradient maximization methodology. This process approaches the construction of a forecasting model as an optimization problem; it searches for the optimal combination of factors that will maximize a model's predictive power. In building our models, the goal or objective function of this
gradient maximization optimization differs depending on the model's intended use. For our
Component Models the design objective typically is to maximize 1
st/10
th decile spread (gross of transactions costs) at institutional holding periods. Our
Stock Selection Models are designed to maximize risk-adjusted portfolio return, net of typical transactions costs, based on monthly rebalancing.
Question: What is the Columbine 1500 Universe?
Answer: In the simplest terms, the
Columbine 1500 Universe represents our attempt to identify a reasonably sized pool of stocks that are representative of an investable universe for most institutional money managers. Every week we apply the Columbine models to the data on thousands of domestic stocks - too big a list for many users. To deliver a workable collection of institutional "household name" companies that will be familiar and meaningful for the majority of our clients we need to create a subset of our full production universe. This
Columbine 1500 Universe is the tool that lets us offer full coverage without losing sight of the realistic needs of most of our clients.
Definition: We start with the 500 names from the S & P 500 Composite Index. The additional 1,000 companies are selected on three measures:
Analyst coverage
Institutional ownership
Dollar trading volume over the past year
We rank every company in the 2,000 biggest names by cap on each of the three factors individually, and then give each company a composite score based on a combination of those three individual measures. The highest scoring 1,000 issues are added to the S & P 500 stocks to arrive at the Columbine 1500.
Updates: We refresh the Columbine 1500 Universe monthly. Any changes to the S & P 500 Index are automatically reflected in the Columbine 1500. In addition, every month we replace any companies that have gone away through M & A activity, or that have changed their characteristics so drastically that they no longer are entitled to a place in the list. The most typical example would be a company that no longer has any analyst coverage. When a company is removed from the list we replace it with the issue with the next highest-ranking selection score outside the Columbine 1500.
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