Friday, March 20, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (March 20, 1998) -- Another Friday, another glance at our Workshop performance. With less than two weeks to go in 1998's first quarter, it's been a good start for the Workshop models, with 75% of them leading the Standard & Poor's 500 Index.

Let's look at the two pack mules today. As I've mentioned in a number of these Friday recaps, the Classic Investing for Growth model remains the only screen losing money for the year. That's the result of a fundamental problem with the model that we've seen played out repeatedly over the last two years: an industry concentration that's simply not safe.

IFG holds too many stocks in one industry group because of its reliance on Value Line's industry ranking as its final screen. A variation where one replaces that final screen with a relative strength measure (like the 26-week total return) has consistently provided a more diverse group of stocks for the IFG follower, as well as produced better returns because it focuses on individual stocks' actual performances rather than simple membership in a recommended industry. So far this year, while the Classic IFG has lost 3.26% (through March 18), it's relative strength cousin has gained 13.78% and is outpacing the S&P 500 Index. The same basic group of IFG stocks, but a different final screen.

The other laggard once again proves the reliability of the Sheard Effect. The Keystone model is trailing the S&P 500 Index by eleven-hundredths of a percentage point so far, chiefly the result of Compaq Computer's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> recent stumble. Nevertheless, a 12.03% return after eleven weeks is still an annualized rate of better than 70% so the fact that Keystone trails the S&P 500 Index at this early date isn't costing me any sleep. But I'm telling you, don't ever invest in a Sheard model until a full year has passed after I announce some results for it. It's the one market-timing strategy I'll grant you!

As for individual stocks, Best Buy <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %> is still scorching down toward the first turn, with an 85% return this year. Ethan Allen <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %>, Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>, and Newport Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NEWP)") else Response.Write("(Nasdaq: NEWP)") end if %> are also standout performers, with year-to-date returns above 50%.

The ponies looking to be on their way to the glue factory are Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %>, ADC Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADCT)") else Response.Write("(Nasdaq: ADCT)") end if %>, and Adaptec <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADPT)") else Response.Write("(Nasdaq: ADPT)") end if %>, each sitting on losses of approximately 40%. The fact that all three big losers are in the Classic IFG portfolio goes a long way to explaining why it's lost 3% so far this year.

Check out the latest file updates for the Workshop:

New Rankings | 1998 Returns | New Database

Go Kentucky!

[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.]