Fool.com: Bears and Relatives (Workshop) October 15, 1998

Bears and Relatives

Burlington, VT. (Oct. 15, 1998) -- Check your charts and calendars, boys and girls, and take a glance back 90 days. It's been a mere three months since the major market indexes closed at record levels, and what a difference a quarter can make. In the time it takes my family to go through a tube of toothpaste, we have, to paraphrase some news reports, gone from the "strongest and most promising economic outlook ever" to "the verge of global financial meltdown." Yeah, right.

Lots of people who are new to investing or are deciding what stocks to begin looking at for a change in investing style often pose the question, "which screen picks stocks that hold up best in a bear market?" Arguably, no one has seen a protracted bear market since the mid seventies, so the scientific answer when applied to the Workshop growth screens would be a puzzled look with an "I dunno" shrug.

For the recent three-month backslide, we do know what happened, though. I thought it might be interesting to look back at two popular Workshop screens to see how the recent bearishness would have treated investors who jumped onboard in January of this year and have stayed the course.

Here's how the story unfolded for the Investors Business Daily-Relative Strength 10 stock model (closing prices):

 
                            90 Day 
       7/17/98   10/14/98   Return 
 BBY    51 3/8    34 3/4    -32.36% 
 SFSK   46        27        -41.30% 
 USTR   35 13/16  24 1/4    -32.29% 
 AWIN   26 15/16  21 1/2    -20.19% 
 SPF    18 5/16    8 1/4    -54.95% 
 WFMI   62 7/8    37 5/8    -40.16% 
 ICN    34 7/8    15 3/4    -54.84% 
 DME    34 7/8    22 11/16  -34.95% 
 DELL   58 7/16   52 3/4     -9.73% 
 CBRNA  48 5/8    40 7/8    -15.94% 
 Average Return             -33.67%

Ouch! This model was really firing on all cylinders when the bull market was on, but it has been going down in a blaze of glory since. It was still in the black for the year as of the last 1998 Workshop Returns update, but it's teetering toward going southward. Now how about the large-cap Relative Strength cousin, the Keystone 10-stock screen? Here are those results:

 
                            90 Day 
       7/17/98   10/14/98   Return 
 FITB  65 7/8     61         -7.40% 
 CCE   40 1/16    29 15/16  -25.27% 
 GPS   65 1/16    56 5/8    -12.97% 
 ATI   59 7/8     49 1/2    -17.33% 
 CA    58 1/2     34 7/16   -41.13% 
 CPQ   33 7/8     25 1/2    -24.72% 
 DELL  58 7/16    52 3/4     -9.73% 
 PFE  115 5/8     96        -16.97% 
 NOB   39 1/16    33 3/8    -14.56% 
 SWY   45 1/8     43 5/16    -4.02% 
 Average Return             -17.41%

Keystone was certainly no safe haven, but compared to the benchmark Standard & Poor's 500 Index, which is off 15.26% since July 17 and up 3.61% for the year to date, the double digit year to date return is not that hard to take. This is, of course, a very small window into how these two models compare in downward markets, but the difference is dramatic and distributed fairly evenly across the individual stocks. It doesn't seem like using these screens as first passes for additional research and screening could have changed the final comparison much.

This year, as we saw in 1997's rally and mini correction, the large-cap stocks held up better. How will the two models compare if we get a sustained rally after a long market slump? If the past is any guide, the smaller cap IBD-RS stocks might go screaming up in their usual fashion. One more parable in the book for diversifying your investments among a number of stocks and market sectors.

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