Origins of the PEND Investment Method

PEND is derived from information in a 1988 article from Forbes Magazine, written by Laura R. Walbert.

Walbert reported a stock-screening method used by New York investment firm Garrison, Keogh & Co. PEND is virtually identical to Garrison's method. In addition to the analysis we call PEND, Garrison used complex, time-consuming fundamental analysis methods to enhance his stock selections. It's likely most investors will find it more fruitful to use PEND in combination with risk-reducing TREND rather than complex fundamental analysis.

Garrison, Keogh & Co. used a simple formula involving four pieces of data. These were price, earnings per share, dividends and book value. Garrison got his data from Shearson's Finstat database.

The formula reported in Forbes was:

    1. Find the earnings yield. This is earnings-per-share divided by the share price. Earnings yield is the reciprocal of the familiar price/earnings ratio.
    2. Find the reinvestment rate. This is the amount of earnings not paid out in dividends divided by book value. The Value Line Investment Survey reports this ratio as "Percent retained to common equity".
    3. Find the dividend yield - the annual payout divided by the stock price.
    4. Add the results from items 1, 2 and 3.
If the percentages totaled more than 25, Garrison would look at the company more closely. The first thing he would do is recalculate the score using his estimate of the company's future earnings. The score should then go up.

Garrison used the method to screen all available stocks. Stocks that made it through the screen would then be researched more thoroughly using traditional fundamental analysis methods. Garrison commented, "The hard work begins after you have done the screen".