The Keystone 100 is just one of a number of strategies developed in the Foolish Workshop. Maybe it's time we looked into some other mechanical strategies like Key100 with the goal of developing a more balanced approach to mechanical investing.
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Each week we run the numbers and list the current Keystone 100 stocks in the Foolish Workshop area on the Current Rankings page, along with 11 other Workshop Screens. We also report the results from our paper Key100 portfolios in Workshop Returns. If you are interested in the Keystone 100, both of those spots might be worthy of a bookmark.
The Keystone 100 is a product of the Workshop, which itself is an offshoot of the Foolish Four area. A bit of history might be interesting (a small bit, I promise). The Workshop was spun off from the Foolish Four area several years ago. At that time Robert Sheard, author of The Unemotional Investor, was coming up with new mechanical investing strategies seemingly every month.
The Workshop was started as a place for experimental investing, testing new ideas, seeing what worked and what didn't. In my opinion it has succeeded beyond all expectations. Although Robert left to start his own investment consulting business two years ago, the ideas have continued to flow and a community has developed in the Workshop that has set the highest standards for both creativity and intellectual rigor.
The Keystone strategy is a perfect example of how the Workshop has developed. The original Keystone strategy was developed by Robert Sheard as an analog to the Foolish Four that selected growth stocks instead of value stocks. So he started with the 30 largest companies listed first or second for Timeliness by Value Line. (The Dow consists of just 30 companies.) The original Keystone did OK but didn't exactly blow anyone away.
Then Powerphil, a participant on the advanced Mechanical Investing Discussion board (the "graduate school" board for the Foolish Workshop) did some thinking about the premises of the Keystone. Why 30 stocks? Thirty stocks is not a magic number just because that's how many companies are in the Dow. And the original Keystone excluded foreign companies, again because the Dow was limited to U.S. corporations. Phil was less concerned with coming up with an analog of the Dow and more concerned about identifying good big cap companies to invest in.
Those were excellent concerns as it turns out. Limiting the universe of stocks to 30 U.S. companies was apparently eliminating some big winners.
That's how the Workshop process works. Ideas are dissected, improved upon, tested, and refined further. It's not a process that everyone is comfortable with and it carries the risk that we could start putting too much emphasis on the numbers and not enough on common sense, but there are enough critics and skeptics in the Workshop that the process weeds out the excesses fairly quickly.
The Workshop participants have developed the idea of mechanical investing that began with the Foolish Four, with generous input from What Works on Wall Street by James O'Shaughnessy, into a full scale investing strategy that could provide excellent returns in all kinds of markets with a properly diversified portfolio of multiple mechanical portfolios. That's the plan, anyway. A large cap value strategy like the Foolish Four would be only a part of the overall strategy.
Over the last four years we've seen ample demonstration of how a single mechanical strategy can't work in every investing environment. I think it's time to look at more of what the Workshop has come up with, keeping in mind at all times, the experimental nature of the strategy. If you think so too, tune in here every Thursday for the next few weeks. I will be discussing some ways to diversify into other mechanical strategies on a regular basis.
Meanwhile, as requested by several readers who want to get up to speed on the Keystone 100, here is a list of articles on the strategy that have been published so far:
A Foolish Five of Growth Stocks
More on Growth Strategies
Foolish Five Growth Stocks Report
Confusing Genius with a Bull Market
Another Look at the Keystone 100
Surviving Growth Markets
A Successful Growth Strategy
In honor of everyone going back to school, there will be a quiz next Thursday on the reading list. You might want to check out the material here as well.
Fool on and prosper!