Disclaimer - zacksrw.com

1 Disclaimer 2011 Zacks Investment ResearchAll Rights performance calculations for the Research Wizard strategies were produced through the backtesting feature of the Research Wizard using the DBCMHIST database and consist of the total return (price changes + dividends) of an equal weighted portfolio. Returns are calculated on a specified periodic basis (most often one or four w eeks) and assume no transaction costs. The portfolio is rebalanced at the start of each new period. Returns can be stated as either annualized or trading/investing involves risk and you can lose some or all of your investment. Hypothetical or backtested results may not always be duplicated in the real world. Backtesting can at times produce an unintended look-ahead bias. Results can also at times be over or understated due to the exclusion of inactive companies. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading, not the least of which is the ability to withstand losses or to adhere to a particular trading strategy in spite of trading losses.

2 These are material points which can also adversely affect actual trading results. The backtested results prepared for these materials were done using the DBCMHIST database and consisted of only active companies. The Research Wizard program has been aligned, to the extent possible, to eliminate look-ahead bias. Zacks however cannotmake any guarantees in regard to this or any other possible limitation. For more information on backtesting, please go to: performance of the Zacks Rank portfolios for annual and year-to-date periods are the linked monthly total returns (price changes + dividends) of equal weighted hypothetical portfolios, consisting of those stocks with the indicated Zacks Rank, assuming monthly rebalancing and zero transaction costs. These are not the returns of actual portfolios. The hypothetical portfolios were created at the b eginning of each month from January 1988 forward based on the values of the Zacks Rank available to Zacks' clients before the beginning of each month.

3 The portfolios created monthly from 1988 through September 2006 exclude ADRs and are comprised of stocks that have the indicated Zacks Rank and were covered by at least two analysts at the time of the stocks inclusion in the portfolio. Starting in October 2006 and going forward, the portfolios are comprised of all stocks with the indicated Zacks Rank and do not exclude ADRs, which is more reflective of thelist of stocks that customers will find on the Zacks web sites. These performance numbers have been audited from 1995 through2003 by Virchow, Krause & Company, S&P 500 Index ("S&P 500") is a well-known, unmanaged index of the prices of 500 large-company common stocks selectedby Standard & Poor's. The S&P 500 includes the reinvestment of all dividends, no transaction costs, and represents the grossreturns before management fees. Zacks Method for Trading: Home Study Course Workbook Table of ContentsDisclaimer ..iiTable of Contents ..iiSymbol Guide.

4 IvLesson 4 Advanced Backtesting and Screening ..1 Introduction to Advanced Backtesting ..2 The Main Features ..3 Automated Robustness Analysis ( best Case / Worst Case Analysis) ..4 Robustness Analysis Checker ..5 Introduction to the Combo Backtesting Feature ..10 What is Combo Backtesting? ..11 Testing for Optimal Valuations with the Combo Backtester ..12 The Power and Convenience of the Research Wizard ..13 APPENDIXThe Zacks Rank Guide ..A1 Zacks and the Zacks Rank ..A2 Who Are Institutional Investors? ..A3 Where Do Earnings Estimates Come From? ..A4 Consensus Estimates ..A5 The Zacks Rank ..A6 The Four Factors behind the Zacks Rank ..A7 The Zacks Rank Performance ..A7 How the Zacks Rank Predicts Price Movement ..A9 Price Spikes and the Zacks Rank ..A11 Why a Stock May Lose Its #1 Ra nk ..A12 Integrating the Zacks Rank into Investment Strategies ..A13 The Difference Between ABR and The Zacks Rank ..A14 Limitations of the Zacks Rank ..A15 Table of Contentsiii 2011 Zacks Investment ResearchAll Rights GuideTo assist you in the use of this Zacks Method for Trading:Home Study Course Workbook, iconshave been used to identify specific areas of interest.

5 They include:Assignment:Identifies areas that require completion before moving on to the next lesson in the :Identifies activities or exercises used to review or test your knowledge in the application of the tools or Point:Identifies objects, lessons, main ideas or terms to help you gain expertisewhile developing strategies for :Designates practical information helpful in gaining knowledge and understandingof the Zacks Method for Trading in the stock :Indicates an area provided in your workbook allowing you to take notes and recordadditional information from your personal studies. Objectives:Identifies information as well as targeted areas for discussion to be coveredduring your home study Snapshot:Provides a brief summary or recap of topics or concepts covered in the Address:Indicates a website or web address with supporting information or additional resources to help develop your GuidePlan to devote a minimum of 15-30 minutes per day to completing the assignments and exercises foreach lesson.

6 It is imperative to spend time educating yourself about the market in order to have long-term success and consistency in profitable objectives for this lesson include: Introduction to Advanced Backtesting The Advanced Backtesting and Screening Add-OnMain Features Automated Robustness Analysis Combo Strategy Backtesting and Screening Testing for Optimum Valuations An Expanded Backtesting Database Automated Robustness Analysis Checker Introduction to the Combo Backtesting Feature Testing for Optimal Valuations with the Combo BacktesterThe following assignments will help you in understanding the information in this lesson: Watch DVD Disc 5: Bonus Advanced Backtesting Complete Exercises - Four Advanced Backtesting and ScreeningObjectivesAssignments and Exercises1 2011 Zacks Investment ResearchAll Rights to Advanced Backtesting In this lesson, we will discuss some of the advanced backtesting and screening features thatcome with the Advanced Backtesting and Screening Add-on for the Research Wizard.

7 As youknow from the previous lessons and from watching the DVDs, the Research Wizard is a verypowerful tool. And the Research Wizard is so e asy to use, it s ideal for all levels of traders andinvestors. The Advanced Backtesting and Screening Add-OnMain FeaturesIntroduction to Advanced BacktestingNotes2 Zacks Method for Trading: Home Study Course WorkbookThe Main Features The main features of the Advanced Backtesting and Screening Add-on are: Automated Robustness Analysis Checker ( best Case / Worst Case Analysis) Combo Strategy Backtesting and Screening (multi-strategy testing) Optimum Valuation Finder (an easier way of testing for Optimum Valuations) An Expanded Backtesting Database (goes back to the year 2000) ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Robust AnalysisBest Case / Worst Case ScenarioLesson Four Advanced Backtesting and ScreeningNotesThe return numbers presented assume no transaction costs. Details of how Zacks calculatesperformance for the Zacks Rank Portfolios and the backtested strategies can be found onpage ii and at is one of the only ways to see how successful your trading strategies are before youplace a trade.

8 And testing your strategies over many different time periods is critical to makingsure your strategies are robust enough to make money in all market conditions no matter whenyou start using it. For example, if your strategy is to buy stocks at the beginning of each month and hang ontothem f or the remainder of the month, it would also be a good idea to see what would happen ifyou picked stocks in the second week, the third week or the fourth week of the month and heldonto those picks for a different set of four-week periods. In other words, how does your strategy do if you buy your stocks at the beginning of the monthand hold onto them until the end of the month? But then what would h appen if you bought yourstocks on the second week of the month and held onto them until the second week of the nextmonth? Or, what if you bought them on the third week of the month and held onto those until the thirdweek of the next month, etc. This is good to know, because depending on when you run yourscreen, your strategy could pick a different list of stocks.

9 This list might be slightly diff erent or meaningfully different each week you run your screen. In addition, these lists will then be held over different sets of four-week periods. Therefore, if yourstrategies can do well no matter what and when, you will know that you ve got something special a proven, profitable and repeatable way to pick winning stocks. You haven t merely stumbled over some coincidental performance result, but instead, you haveidentified a truly robust trading strategy. While much of this can be done individually in the standard backtester in the Research Wizard, the Advanced Backtester lets you test your strategy over multiple start dates with only one click of the mouse instead of setting up separate tests for each new start date you want to test it over. This is great for the casual backtester w ho simply wants to see how something has done overtime as quickly and easily as possible. It s also perfect for the advanced strategy builder whoAutomated Robustness Analysis( best Case / Worst Case Analysis) 2011 Zacks Investment ResearchAll Rights Method for Trading: Home Study Course Workbookneeds answers fast, as different screens and ideas are constantly being tested and re-testedto find advantages over the market.

10 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Refer to the Bonus DVD, Disc 5: Advanced Backtesting. Follow along with the Automated Robustness Analysis Checker demo using the Research :To backtest this strategy on your own in the Research Wizard, follow along withthe procedure on your DVDs while duplicating the steps illustrated by the instructor. Completethe procedure before moving on in this workbook. Robustness AnalysisBest Case / Worst Case ScenarioExercise : Robustness Analysis CheckerLesson Four Advanced Backtesting and ScreeningNotesThe return numbers presented assume no transaction costs. Details of how Zacks calculatesperformance for the Zacks Rank Portfolios and the backtested strategies can be found onpage ii and at Tool of ConvenienceThe Robustness Analysis checker is a great convenience tool and displays all of your strategy s different start dates in one report for quick and easy analysis. In the example just completed,the instructor used a two-week holding period so there were only two possible start dates.