Wednesday, April 29, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (April 29, 1998) -- When the official April reporting period for the original monthly Unemotional Growth model closes this Friday, it looks like we'll be four-for-four in 1998. Remember that the Unemotional Growth model, even though we're following an annual version for our eight screens in this year's Workshop, was really designed to be used on a monthly rotation schedule. (I use the closing values on the first Friday of each month for this history.)

Late this afternoon, the five-stock version of this screen is up 3.03% for the month compared to a 2.42% loss for the Standard & Poor's 500 Index. (Neither the model portfolio nor the index are accounting for dividends.) In January, the UG5 beat the S&P 500 4.83% to 3.84%. In February, UG5 smoked the index, 12.14% to 4.27%. And then in March, UG5 had another healthy win, 9.46% to 6.35%.

The year-to-date return, then, is 32.6% for the Unemotional Growth model and 12.4% for the S&P 500 Index.

The stocks for April have been Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>, up 15.12%; PeopleSoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSFT)") else Response.Write("(Nasdaq: PSFT)") end if %>, down 14.83%; HBO & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HBOC)") else Response.Write("(Nasdaq: HBOC)") end if %>, off 0.10%; Anchor Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLOT)") else Response.Write("(Nasdaq: SLOT)") end if %>, up 9.36%; and Cambridge Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CATP)") else Response.Write("(Nasdaq: CATP)") end if %>, up 5.60%.

A number of readers have asked recently about the number of trades to expect with this model. The average number of stocks replaced each month is between one and two, and 1998 has proven no exception.

Heading into January, one would have replaced only one of the December stocks. Adjusting in February required two changes. March didn't require any changes, and April required a single change. Through four months, the straight-up Unemotional Growth Five would have required four stock replacements, or eight trades. That pace would require roughly twenty-four trades over the course of the year. Assuming one also evens out the position weightings once or twice a year, the total trades might increase to thirty or so. That would point to a minimum starting amount of at least $15,000 for this strategy.

A number of readers have noticed that a stock in the top five might slip into the second five one month and then work its way back into the top five soon thereafter. You could easily argue for a strategy where you didn't replace such a stock just because it slipped from number five to six. That's your call. I tested the history of the approach with a complete rebalancing every month, using the exact rankings, simply for the sake of consistency of results. You can certainly make the hypothetical model fit a real trading strategy by fudging the rankings in those minor cases.

Fool on!

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

[Robert Sheard is the author of The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and soon at your local bookseller.]