When stock-picker Steven Singleton has an investment suggestion for one of his clients, he consults Elroi. Around the office, Elroi is known as an ace at selecting top-performing stocks. You may think that Elroi earned an M.B.A. or is in training to become Wall Street’s next financial guru.
Elroi, which stands for Electronic Review of Investments, helps develop a model portfolio run by Singleton’s firm, Oakland, California-based Robert Van Securities Inc. During the past year, it has posted impressive returns of 43%, outpacing the 27% rise in the Standard & Poor’s 500 Index.
Elroi is an “electronic analyst” that screens a universe of 4,500 stocks and helps Singleton make top-notch recommendations. Singleton’s clients, primarily fund managers and high net worth individuals, can review their own stock ideas against those of Elroi’s, get an evaluation of a given stock’s risk level or examine the 25-30 companies held in the Elroi Growth Model Portfolio simply by logging on to www.robertvan.com.
Robert Van Securities, an African American-owned firm, was founded in1991. But it wasn’t until October of 1997 that Elroi came to life. Elroi was created when Singleton wanted to show his clients that they could
manage money with a black box-one that combines fundamental research with data to produce buy or sell recommendations on stocks.
Since it serves as an electronic model, Elroi has no assets. But from its inception through December 1998, the Elroi Growth Model Portfolio has beaten the market every quarter. To get that kind of performance, it has focused primarily on a company’s growth prospects. “We figure that the stock that’s the most likely to perform well tomorrow is the one that’s doing well today,” Singleton says, explaining what he calls “the success principle.”
A stock’s price-to-earnings (P/E) ratio, a common valuation criterion used by most research analysts, doesn’t figure prominently in Singleton’s stock picking process. “P/E isn’t a consideration,” he says. Instead, Robert Van Securities is guided by a “consensus opinion on where we think a stock’s growth rate is heading down the road.” A given company that makes the cut must have exhibited positive earnings momentum and a positive alpha-the measure of the amount of return based on the investment’s inherent value over and above its relationship to the overall stock market. Singleton seeks out opportunities in which his stock will go up despite the market cycles. By sticking with positive alphas, Singleton never engages in bottom-fishing.
At the end of December, Elroi’s Growth Model Portfolio was up 14.8%, compared with a 6% rise in the overall market, as measured by the S&P 500. Elroi and Singleton are most enamored by high-tech stocks. When it comes to Internet infrastructures, Elroi likes Lucent Technologies (NYSE: LU) and MCI WorldCom (Nasdaq: WCOM). “Lucent provides the actual equipment that one needs to log on to the Internet and anyone cruising the Net has got to dial into an Internet service provider and get switched somewhere along the information superhighway,” says Singleton. “That’s where MCI Worldcom comes in. Most telecommunications companies are going across MCI