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ASC's Philosophy

Science has always expected that the principles uncovered by today's experiments will be valid tomorrow. Economics is an inexact science, but if relationships we measure now do not in any way hold in the future, economics is not amendable to any analysis — only to guesswork.

ASC holds that past economic relationships have application to the future — but these relationships must be estimated with great care.

  • ASC represents the economy with composite economic factors which minimize the impact of fluctuations and idiosyncrasies in individual economic series.
  • A stock or group which has not been strongly related to economic factors in the past cannot be assigned an extreme rank.
Preference rankings provide an objective screen to insure that economic factors are thoroughly understood in stock and group selections.
  • ASC has used statistical estimates that do not allow insignificant relationships to affect a stock's economic preference.
  • Because 20 factors are involved, highly unusual behavior of a single factor will not inordinately impact the preference ranking.
  • Statistics for the ASC model are updated monthly.

ASC's techniques for preference ranking and for viewing the economy are systematic reflections of past behavior. Preference rankings provide an objective screen to insure that economic factors are thoroughly understood in stock and group selections.

Market Influences

Analysis of market risk is certainly key to any investment strategy. Here too, Sector Analysis provides new insights. After a thorough-going analysis of the conventional risk proxy, the well known "beta", Analytic Systems Corp's analysts concluded that a superior measure was highly desireable.

After exploration of a number of options, it was determined that a "double beta" concept improved the statistical quality of the results for virtually all stocks in the universe. Consistent with this finding, each stock is quantified according to its response to both market earnings and P/E multiple.
Groups and stocks within those groups show a wide variation on a number of factors: earnings sesitivity, market sensitivity and economic variables.
Sample Group Economic and Market Influences
 
% Explained
Market
% Explained
Economic

Sensitivity to
Market P/E

Sensitivity to
Earnings
Advertising
42.9 %
41.2 %
1.07
1.23
Electical Equipment
59.8 %
30.9 %
1.10
1.00
Capital Goods
48.2 %
42.3 %
1.06
1.16
Drugs*
65.8 %
17.4 %
1.17
0.99
Aerospace
51.2 %
34.4 %
0.91
0.99
Office Equipment
52.1 %
37.7 %
1.53
1.35
Electonics
44.7 %
30.0 %
1.16
1.00
Metals*
18.6 %
57.6 %
0.97
1.33
Travel
34.8 %
38.0 %
1.47
1.93
Automotive
40.7 %
49.7 %
1.20
1.49
Home Furnishings
64.0 %
23.9 %
1.53
1.35

* Drugs are sensitive as a group to the market's P/E multiple as indicated by their P/E beta of 1.17 but only modestly sensitive to the market's earnings at 0.99.
Metals show a different effect: low sensitivity to the market's P/E at 0.97 and high sensitivity to the market's earnings, with an earnings beta of 1.33.

The key point is that the behavior of groups and stocks within those groups show a wide variation on these economic factors.

ASC's Sector Analysis is the only approach which allows the money manager to understand and act on the key factors influencing equity behavior.

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