Tuesday, June 09, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (June 9, 1998) -- The momentum-oriented Relative Strength Dozens portfolio has recovered nicely from its recent correction and is back on top of our Dozens rankings. Let's get back up to speed on how these experiments are faring.

The Dozens models follow a strategy where an investor adds one new stock each month according to his or her favorite screen rankings. One buys the highest-ranked stock not already in the portfolio, a process by which, after one year, would flesh out a full dozen positions. Then as each stock becomes a year old in the portfolio, it's re-evaluated using the then current rankings and replaced if necessary.

It's a nice plan if you save regularly and want to add new money every month without running up a lot of extra commissions. The maximum number of trades per year is 24, and if you're working with a portfolio of $12,000 or more (a minimum of $1,000 per position), your trading costs are easily manageable with a deep-discount broker. It's also a good way to begin a portfolio. With a couple thousand dollars, you can begin filling out your Dozens dance card, and then as you save another $1,000 you can fill in one of the empty slots. You don't have to fill out all twelve the first year as our model assumes.

In our experiment we began each model with $1,000 on the last day of December and then added $1,000 each month to buy the new stock.

A sharp reader pointed out that I was setting up an apples and oranges comparison by measuring these models against the Standard & Poor's 500 Index growth since 12/31. The models don't have a lump sum invested all on December 31, so to make a better comparison, I should also be investing a hypothetical $1,000 per month into an index vehicle. I've chosen the S&P 500 unit trust known as a Spyder <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: SPY)") else Response.Write("(AMEX: SPY)") end if %>.

Since the beginning of the year was so strong compared to recent months, this actually lowers the benchmark comparison because the money added to the market index later in 1998 hasn't done nearly as well as the money added at the end of December. But as that's also what we're doing with the Dozens approaches, it's a more relevant benchmark. All returns are reported exclusive of dividends, but each trade has been charged an $8 commission.

The following table shows the annualized returns through 3:00 this afternoon. Keep in mind the volatility of annualized figures for a partial year and a half-full portfolio.

71.9%  Relative Strength Dozen (26-Week Method) 
 57.7%  Formula90 Dozen 
 47.0%  Keystone Dozen 
 28.0%  Dow Dozen (Unemotional Value Method) 
 26.2%  S&P 500 Spyder 
 18.7%  Dow Racers (High Relative Strength Dow Stocks) 
 -0.7%  Low Price/Sales Dozen 
 

The Relative Strength Dozen slumped several weeks ago but has rebounded strongly of late. The $6,000 invested would be worth $6,831.81 today. The annualized rate of growth (71.9%) equates to a year-to-date gain of 26.8% for the first 160 days of 1998.

Here's how the individual stocks in the Relative Strength Dozen have fared. They're listed in the order they were acquired and the percentage returns are since the acquisition dates, not since the end of last year (with the exception of the first stock, which of course, does date back to 12/31.)

Best Buy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %> +101.4%
Ethan Allen <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %> +4.0%
Alaska Air Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALK)") else Response.Write("(NYSE: ALK)") end if %> -7.0%
Whole Foods Market <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %> -21.4%
Capital One Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> +5.3%
America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> +4.0%

As I've written many times in the past, the returns for these Dozens models will be much more meaningful after they're at least one year old. At that point, at least we won't be dealing with a partial portfolio or a fraction of a year which can dramatically skew the annualized returns. 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.]