The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (Feb. 13, 1997)

With the volatility in the market recently, we've spent a lot of time discussing the various Growth screens. Why is the Relative Strength screen off to such a major jump. Why is Unemotional Growth lagging? Should we use stops? If so, how should they be used?

But an important point is one we haven't raised lately. And that's simply that each of these screens should only be considered in conjunction with a complementary strategy. In other words, the best way to build a diverse portfolio is to include a Growth strategy and a Value strategy.

Often when one group of stocks is lagging, the other one will pick up steam. And by including the high-yield large-cap Dow stocks, you add a measure of stability in volatile times like we've seen lately.

Suppose one put the two "Unemotional" portfolios together, using the Unemotional Growth 5-stock approach with the 4-stock Unemotional Value approach (doubling the weight of the first two UV stocks).

If each year for the past decade, we re-balanced the portfolio so that the UV and UG portions were equally weighted, the combined growth rate per year would have been 31.66%. A $50,000 portfolio using this approach at the beginning of 1987 would now be worth almost $783,000.

As for volatility, here are the annual returns using such a combined approach. The only losing year was the recession of 1990:

1987    22.37%
1988    10.58%
1989    51.63%
1990   -10.98%
1991   120.13%
1992    36.47%
1993    29.88%
1994     2.75%
1995    37.70%
1996    55.25%

Total return: 1,465%
Dow return: 240%

To put that return in perspective, of the more than 3,400 mutual funds included in the recent Money Magazine survey, that's almost ten percentage points a year better than any mutual fund has recorded over the past decade. (The best fund was the Seligman Communications and Information fund, with just over 22% a year.) Just think, such an approach would have put you more than 40% a year ahead of the best Wall Street had to offer for the decade. Foolish, eh?

Monthly Growth Screens
     (Jan. 3 to present)
22.56%  Relative Strength  
17.30%  YPEG Potential  
11.17%  Low Price/Sales  
  8.53%  S&P 500 Index  
  4.87%  Investing for Growth  
 -5.51%  EPS Plus RS  
 -7.62%  Unemotional Growth  

Annual Value Screens
     (Jan. 1 to present)
  8.91%  Dow Jones Ind Avg  
  7.73%  Dogs of the Dow  
  5.97%  Beating the S&P  
  4.35%  Dow Combo  
  3.26%  Unemotional Value  
  3.26%  Beating the Dow  
  1.13%  Foolish Four