Wednesday, March 18, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (March 18, 1998) -- Yesterday in my Daily Dow column, I presented an update for the Dow Dozen portfolio, so today in the Workshop I want to update the other four Dozens portfolios.

If you aren't familiar with the Dozens models, they're designed for the investor who's beginning small or who adds new money every month and wants a portfolio approach that allows for regular new deposits without running up wildly unnecessary trading costs.

The method is simple: each month (or each month you can afford to buy a new stock) buy the top stock using whatever screening technique you favor. If the top stock is one already in your portfolio, drop down the rankings until you find the best stock you don't already own. By the end of the first year, you're holding a dozen stocks, at which time you start updating your holdings, one each month, as they grow to be a year old. You'll always hold twelve stocks after that first year, and each month when you replace the oldest one you can add new money and/or rebalance the weight of that position so it equals 1/12 of your total portfolio value.

The five Dozens portfolios we're following this year are the Dow Dozen (which I wrote about yesterday), the Dow Racers (Dow stock with the best 26-week relative strength), Keystone Dozen, Formula90 Dozen, and Low PSR Dozen.

Of course, as I mentioned yesterday, returns at such an early stage don't mean much because they'll fluctuate wildly with every minor stock price change. There are only three stocks in each portfolio so far and the portfolios aren't even three months old yet. So take the wide swings in returns with a cattle-lick of salt, not just a pinch.

With near closing numbers today, here's how the five Dozens portfolios look:

Model            Total    Annualized 
 Name             Return         Pace 
 F90 Dozen         25.9%       198.2% 
 Low PSR Dozen     20.2%       138.8% 
 Dow Dozen         12.4%        74.4% 
 S&P 500 Index     11.8%        69.7% 
 Keystone Dozen     6.7%        36.2% 
 Dow Racers         3.8%        19.4% 
 

Because of the fantastic start for the Formula90 Dozen, I looked over our older databases to see if perhaps it was a fluke resulting from a single stock boosting the returns for the whole group over such a brief period, but in fact, the returns for that model have been pretty consistent so far.

I even recreated a Formula90 Double-Dozen (that is, two stocks each month instead of one), to see if the returns would stand up, and lo and behold, they got even better. So I'm not willing to write off the good performance to date to a single remarkable stock.

In the Double-Dozen version, the first two stocks bought would have been Safeskin <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFSK)") else Response.Write("(Nasdaq: SFSK)") end if %> and United Stationers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USTR)") else Response.Write("(Nasdaq: USTR)") end if %>. Safeskin is up 15% and United Stationers is up 34% since the acquisition date of December 31.

The next two stocks would have been Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> and Alaska Air Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALK)") else Response.Write("(NYSE: ALK)") end if %>. Dell is up 25% and Alaska Air is up 19% since January 30.

The most recent two stocks would have been Whole Food Markets <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %> and Oshkosh B'Gosh 'A' <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GOSHA)") else Response.Write("(Nasdaq: GOSHA)") end if %>, up 5% and 2% respectively since February 27.

Overall the portfolio would be up approximately 28% already in 1998, an annualized pace of some 227%. Not a bad early performance and one worth watching throughout the year.

Fool on!

[Robert Sheard is the author of the forthcoming book, The Unemotional Investor, due out from Simon & Schuster on May 12. To pre-order your copy, please visit Amazon.com, where it's available at a discounted price.]