Keystone Doubling the S&P 500

by Robert Sheard
(TMF Sheard)

LEXINGTON, KY. (August 11, 1998) -- Having been gone last week while the market was slipping in the muck, I decided this is a good chance for us to see how the Keystone model will perform amid some selling in large-capitalization stocks. One of the questions about the model, as it is in part based on price momentum (relative strength), is whether or not it will get hammered unduly in market corrections.

That hasn't been the case in recent years when the market had short-term periods of weakness (1987, 1990, and 1994), but my data only going back to 1986 hasn't really put Keystone to a major bear test yet. Will this be it? No one knows. In 1987, the ten-stock model managed an 11.3% gain versus the Standard & Poor's 500 Index's gain of 5.2%. In 1990, the last recession, the Keystone 10 lost 1.0%, its only loss since 1986. The S&P 500 lost 3.2%. And in 1994, when we had what some analysts called a stealth bear market, the Keystone 10 gained 11.3% while the S&P 500 gained just 1.6%. So it has held up well in weak markets before. Will it again?

The returns I'll list here are through last Wednesday, so they include last week's sell-off, but not Thursday's and Friday's rallies nor today's sell-off.

This Year Through August 5, 1998:

 
 S&P 500 Index       11.9% 
 Keystone 5          11.8% 
 Keystone 10         29.5% 
 Keystone 15         21.0% 
 Keystone 20         21.2% 
 Keystone 25         22.6% 
 Keystone 30         23.8%

With the exception of the normally top-performing Keystone 5 group, then, the rest of the groups have virtually doubled the S&P 500's gains for the year. Of the thirty stocks in this year's model, only seven are losing money (although a few of those have lost large percentages). Once again, this supports my belief that the way to protect against any one stock taking down a whole portfolio is to own up to twenty positions to spread the per-stock risk.

Here, then, are the thirty stocks' individual return figures. The stocks are listed in their Keystone order as of January 1. 

 
   10.03  Fifth Third Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FITB)") else Response.Write("(Nasdaq: FITB)") end if %> 
  -17.26  Coca-Cola Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCE)") else Response.Write("(NYSE: CCE)") end if %> 
   68.07  Gap (The)  Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> 
   34.59  AirTouch Communic. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATI)") else Response.Write("(NYSE: ATI)") end if %> 
  -36.51  Computer Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %> 
   13.18  Compaq Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> 
  154.17  Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> 
   42.83  Pfizer  Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %> 
  -11.02  Norwest Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOB)") else Response.Write("(NYSE: NOB)") end if %> 
   36.76  Safeway Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWY)") else Response.Write("(NYSE: SWY)") end if %> 
  -55.09  Cendant Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CD)") else Response.Write("(NYSE: CD)") end if %> 
   16.92  Travelers Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %> 
  -29.78  Schlumberger Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %> 
   38.21  Home Depot <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %> 
   49.54  Schering-Plough <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %> 
   13.45  Medtronic  Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDT)") else Response.Write("(NYSE: MDT)") end if %> 
   34.11  Dayton Hudson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %> 
   35.20  Tyco Int'l Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TYC)") else Response.Write("(NYSE: TYC)") end if %> 
  -11.23  Allstate Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALL)") else Response.Write("(NYSE: ALL)") end if %> 
   37.34  Walgreen Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAG)") else Response.Write("(NYSE: WAG)") end if %> 
    5.74  Freddie Mac <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRE)") else Response.Write("(NYSE: FRE)") end if %> 
   55.11  Wal-Mart Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %> 
  -14.91  Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> 
   20.99  Merrill Lynch & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> 
   73.54  Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> 
   12.96  MBNA Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KRB)") else Response.Write("(NYSE: KRB)") end if %> 
   20.58  BankAmerica Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> 
   19.91  Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> 
   61.41  Microsoft Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> 
   36.12  Xerox Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XRX)") else Response.Write("(NYSE: XRX)") end if %>

Over the longer term, the compound annual returns continue to impress with both their consistency and their progression as one goes toward more concentrated portfolios. Here are the annualized returns, including dividends, for each group:

January 1, 1986 through August 5, 1998: 

 
 Keystone 5                28.1% 
 Keystone 10               26.1% 
 Keystone 15               24.0% 
 Keystone 20               23.1% 
 Keystone 25               21.5% 
 Keystone 30               20.9% 
 Beating the Dow 5         18.7% 
 Beating the Dow 10        18.3% 
 S&P 500 Index             17.2%

Interestingly, one of the gooroos on CNBC today was proclaiming that investors should simply get into an index fund because it's been virtually impossible to beat the index over the last eight or nine years. Yet over the last nearly thirteen years, the Keystone 5 has only lost to the S&P 500 once. (This year's still a toss-up.) And the Keystone 10 has only lost to the S&P 500 twice. Even the Keystone 30 has beaten the index in all but three of the thirteen years.

So don't believe 'em, readers. Anyone who tries to convince you that you can't beat the market over the long run as an individual investor is just dead wrong. Seventy years of Dow data prove that. Over thirty years of Value Line results prove that.

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.]