The Motley Fool: The Foolish Workshop, Thursday, February 26, 1998

Thursday, February 26, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (February 26, 1998) -- There has been far more interest in my "Dozens" portfolios than I anticipated, so today I want to add two new "Dozens" portfolios to the list and then cap the list there, lest it get out of hand like last year's Workshop reporting did.

I also want to revise the rules on these portfolios to put the five we're going to follow on an equal footing. Before you accuse me of cooking the books in my favor, though, the change actually hurts the early performance of the model affected, so take me at my word when I say I'm changing the rules to regularize the approaches.

We'll be following five Dozens portfolios. The rules for each are that one new stock is added to the portfolio based on that portfolio's screening technique at the close of the last day of each month (using the closing price on that day). Commission charges will be assessed at $8 per trade. If the current highest-ranking stock is already in the portfolio, we dip down the list until we find a stock not already in the portfolio. Each month we add $1,000 to the portfolio to make the new stock purchase.

The returns I'll post here are annualized numbers, calculated using the XIRR function (Internal Rate of Return) in Excel. (This accounts for the cash additions and the time-value of those regular deposits.) For the first year, these annualized returns will swing wildly because our test period is so short and the holdings so few, so don't be overly swayed by these numbers early in the game. After the portfolios are a year old, the returns will mean more.

When the year is up and we begin updating stocks, we'll discuss how to go about rebalancing the positions. For now, we're just going to focus on getting the portfolios fleshed out each month with the 12 stocks.

The original two models were the Dow Dozen and the Keystone Dozen, and these are the two models I'm changing slightly to make all five work the same way. For the Dow Dozen, I had originally intended to choose four Foolish Four stocks and then flesh it out with eight Keystone stocks, but since we're also following a Keystone Dozen, that's redundant. So the Dow Dozen will simply stick to the Foolish Four rankings, even though that may mean dipping down pretty far in the standings to get twelve stocks. So be it. Let's make it easy.

The change to the Keystone Dozen is simply that I won't be starting out with a full $12,000 and parking the bulk in a Spyder, even though so far the Spyder's doing better than either of the holdings in the portfolio. Instead, as with the other portfolios, we'll assume a new $1,000 is added each month.

Here, then, are the five "Dozens" portfolios:

The Dow Dozen (best Foolish Four stock)
The Keystone Dozen (best Keystone stock)
The Dow Racers (highest relative strength Dow stock)
The PSR Dozen (best low PSR stock from our workshop screen)
The F90 Dozen (best Formula 90 stock)

I could add several more of these Dozens portfolios, but five is enough. So far, the returns are all over the map. Each portfolio has deposited a total of $2000 so far. Here are the current portfolio values and the annualized returns for the first two months (less one day):

                 Value   Ann. Return 
 F90 Dozen      $2,374.06   336.7% 
 PSR Dozen      $2,331.50   274.4% 
 Dow Dozen      $2,091.69    47.5% 
 Dow Racers     $2,024.00    10.9% 
 Keystone Dozen $2,000.37     0.2%

And here are the holdings for each portfolio so far, listed in the order the portfolios acquired them:

F90 Dozen 
      Safeskin <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFSK)") else Response.Write("(Nasdaq: SFSK)") end if %> 
      Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> 
  
 PSR Dozen 
      VWR Scientific <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VWRX)") else Response.Write("(Nasdaq: VWRX)") end if %> 
      Alaska Air Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALK)") else Response.Write("(NYSE: ALK)") end if %> 
  
 Dow Dozen 
      Union Carbide <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UK)") else Response.Write("(NYSE: UK)") end if %> 
      International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %> 
  
 Dow Racers 
      AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> 
      Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> 
  
 Keystone Dozen 
      Fifth Third Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FITB)") else Response.Write("(Nasdaq: FITB)") end if %> 
      Schering-Plough <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %>

I'll keep you posted on the progress of the five "Dozens." We'll be adding the third stock to each portfolio at the close of trading tomorrow, using the newest rankings in tomorrow's weekly updates. Fool on!

[Want to be the first Fool on your block to get a copy of Robert Sheard's forthcoming book? Click here to pre-order your copy of The Unemotional Investor.]