Friday, March 13, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (Mar. 13, 1998) -- Data update day! Please visit our three weekly files to see the Current Rankings, the New Database, and the 1998 Returns (through Wednesday).

There's no competition for the hot spot in the Workshop so far. Best Buy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %> is still leading the field with an awesome 10-week return of 72%. Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> and Ethan Allan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %> are both sporting returns of better than 50% so far.

I want to look a little more closely at the two Investing for Growth variations that we're tracking this year. The original IFG model is the only one of our eight portfolios losing to the S&P 500 Index so far in 1998, limping along with a net loss of 1.9% so far.

Yet the experimental IFG model based on relative strength instead of Value Line's industry rankings is ahead of the S&P 500 with a return of 14.3%. You have to agree, a differential of more than 16 percentage points for the two close cousins is eye-popping.

What's been so different? Both portfolios are suffering with losing stocks, and three such stocks are in both portfolios: Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %>, down 33.7%; Compaq Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>, down 9.5%; and Computer Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>, down 4.7%.

But where the huge difference lies is in the massive losers the Relative Strength screen avoided and the Classic approach included. Where the classic IFG approach picked up Adaptec <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ADPT)") else Response.Write("(NYSE: ADPT)") end if %>, which has lost 36.5%, and ADC Telecommunications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADCT)") else Response.Write("(Nasdaq: ADCT)") end if %>, which is down 47.2%, the Relative Strength model picked up ICN Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ICN)") else Response.Write("(NYSE: ICN)") end if %>, which has gained 38.7%, and Franklin Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEN)") else Response.Write("(NYSE: BEN)") end if %>, currently up 21.4%.

It's early yet, but many of us have watched the IFG model with a relative strength screen since sometime in 1996, and it appears in this brief period that the relative strength screen is simply a superior test to the original industry ranking I built into IFG. It not only chooses stocks currently performing better than the classic approach does, but it also tends to spread out the industry concentration that can plague the original IFG model.

If you're contemplating using IFG, it's worth a look to consider replacing that industry ranking screen with a relative strength test. Fool on!

Go Cats!

Kentucky 82 - South Carolina St. 67

[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.]