Dizzying Dozens
(TMF Sheard)
LEXINGTON, KY. (July 14, 1998) -- The sweet spot for three of the Dozens models remains in place. The Keystone Dozen, the Formula90 Dozen, and the Relative Strength Dozen are all on a pace to thrash the Standard & Poor's 500 Index and record massive gains. Is it sustainable?
For Dozens newcomers, this portfolio approach adds one new stock each month, ultimately leading to a full portfolio of a dozen stocks. Once the portfolio is full (when it's a year old), then one embarks on a routine maintenance program, replacing the oldest stock each month (if necessary) with the highest-ranking stock in the current standings for whatever screen (or combination of screens) one has chosen. Do not buy the same stock more than once, however; go down the list if the top stocks are already in your portfolio until you get to a new candidate.
This program always allows one to choose from among the highest-ranked stocks and also allows one to add new money every month. It doesn't rack up a lot of trades, however (a maximum of 24), and each holding stays in the portfolio a full year, qualifying for the proposed long-term tax rate of 20%.
I follow six models using Dozens methods. All of the models are compared to a benchmark in the S&P 500 Index Spyders <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: SPY)") else Response.Write("(AMEX: SPY)") end if %>. If one had deposited $1,000 each month into the index Spyder instead of choosing individual stocks, the portfolio would be on a pace to record an annual gain this year of 39.4% -- not bad at all. Three of the models I follow are lagging that benchmark return.
The first two are models based on Dow stocks. The Dow Dozen, which uses the Unemotional Value rankings to select its stocks, is on a pace to record an annual gain of only 14.1%; the Dow Racers Dozen, which selects the Dow stock each month with the best relative strength, is on a pace to record an annual gain of 19.9%.
The third model trailing the Spyder benchmark is the Low Price/Sales Dozen. This approach selects stocks based on the following criteria, gleaned from Jim O'Shaughnessy's book What Works on Wall Street: price/sales ratio less than 1.5, one year earnings per share growth greater than 0, and the best relative strength. So far, this Dozens model is on a pace to gain 28.1% for the year.
Our three relative strength models, however, are soaring. (If you want specific directions about how the following three screens are performed, please see the explanatory file in the Workshop.)
The Keystone Dozen model is on a pace to gain 139.6% for the year. What really strikes me the most about this model (and I've mentioned this on several occasions), is that all of the holdings are recording nice gains. The overall return isn't being carried by one or two stocks. Here are the holdings for the Keystone Dozen, listed in the order they were acquired. The returns are since the stock was added to the portfolio, not since the beginning of 1998.
Fifth Third Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FITB)") else Response.Write("(Nasdaq: FITB)") end if %> 15.3%
Schering-Plough <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %> 43.7%
Pfizer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %> 34.5%
Tele-Comm, Inc. 'A' <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %> 27.7%
America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> 50.2%
Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> 30.8%
EMC Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMC)") else Response.Write("(NYSE: EMC)") end if %> 10.4%
Doing just slightly better overall is the Formula90 Dozen model, but the individual stock returns have been quite a bit less consistent. The annualized pace for this portfolio is 145.8%. The holdings include:
Safeskin <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFSK)") else Response.Write("(Nasdaq: SFSK)") end if %> 59.5%
Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> 116.9%
United Stationers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USTR)") else Response.Write("(Nasdaq: USTR)") end if %> 17.0%
Ethan Allen <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %> -15.4%
Capital One Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> 32.1%
Lowe's Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LOW)") else Response.Write("(NYSE: LOW)") end if %> 6.0%
The Gap, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> 7.8%
And finally, the leader of the six portfolios, with a whopping annualized return of 172.5%, is the Relative Strength Dozen. For this model, I'm using the relative strength screen based on 26-week total returns, not the one based on Investor's Business Daily rankings. Again, as with the Formula90 Dozen, this impressive overall return is riding the back of a couple of stocks, not a consistent performance across the board. And the fact that some of the earliest acquisitions in both portfolios have performed the best on an annualized basis has really helped the portfolios' returns.
Best Buy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %> 151.5%
Ethan Allen <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %> 5.6%
Alaska Air Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALK)") else Response.Write("(NYSE: ALK)") end if %> 10.2%
Whole Foods Market <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %> -7.1%
Capital One Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> 32.1%
America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> 44.2%
Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> 16.2%
My usual disclaimer applies here. These returns are annualized figures, which means that they project the current returns out over an entire year. Needless to say the first six and a half months have been far better than is typical for stocks (especially large-cap stocks). And with only seven of the eventual twelve holdings in each portfolio, a big move in any single stock still has an inordinately large effect on the overall portfolio's returns. Take all annualized returns on portfolios considerably younger than one year with a blood-pressure-killing chunk of salt.
Dozens Summary 172.5% Relative Strength Dozen 145.8% Formula90 Dozen 139.6% Keystone Dozen 39.4% S&P 500 Spyder 28.1% Low Price/Sales Dozen 19.9% Dow Racers Dozen 14.1% Dow Dozen
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.]