Tuesday, May 12, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (May 12, 1998) -- For those readers following along with the original Unemotional Growth model (updated on a monthly basis), here's an update for the May holdings.

As of roughly 2:00 this afternoon, the May group of five stocks is up a modest 2.66%, but compared to a loss of 1.10% for the Standard & Poor's 500, we'll score that a victory. Four of the five may stocks are in the black for the month, with AirTouch Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATI)") else Response.Write("(NYSE: ATI)") end if %> the only laggard (down 2.75%).

Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> continues to be the portfolio champion, up another 8.53% this month (more than doubling for the year). Long-time UG holding HBO & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HBOC)") else Response.Write("(Nasdaq: HBOC)") end if %> is up 3.12%, Anchor Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLOT)") else Response.Write("(Nasdaq: SLOT)") end if %> is up 2.99%, and PeopleSoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSFT)") else Response.Write("(Nasdaq: PSFT)") end if %> is trying to move higher with a gain of 1.41%.

This month's gain of 2.66% puts the portfolio ahead 34.77% year-to-date, swamping the S&P 500 Index's returns of roughly 13.7%. (Neither figure includes dividends.)

Now the Unemotional Growth group we're tracking as part of the Workshop screens this year is based on an annual holding period, and with a gain of only 20.75%, it's trailing the more aggressively updated model significantly. This is to be expected, based on my past research. The earnings momentum that underpins the Unemotional Growth model is best suited to a relatively short holding period.

Updating the stocks monthly or quarterly, while incurring short-term gains if you're using this in a taxable account, allows you to dump a stock somewhat rapidly if its earnings momentum slides. Such was the case earlier in the year when ENSCO International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ESV)") else Response.Write("(NYSE: ESV)") end if %> ran into problems along with the entire oil services industry group. Unemotional Growth dropped the stock before a lot of the damage was done and picked up a profitable replacement.

The model isn't always so sensitive, of course. Investors using or watching Unemotional Growth in 1997 saw the model's worst performance, relative to the S&P 500 Index, in its twelve-year history. After a wild ride, dropping and then regaining more than 25% of its value early in the year, the model ended the 1997 with a pitiful 1% profit while the S&P 500 scored gains of more than 33%. Nevertheless, the longer-term compound growth rate for the model remains very high at nearly 40% per year since 1986.

This model, though, is definitely not for the easily frightened. It can be extraordinarily volatile, descending as well as rising. Be prepared for the ride and Fool on!

Check out the latest file updates for the Workshop:
New Rankings | 1998 Returns | New Database

[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]