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When I started, my goals were modest:
What a year it turned out to be. Not only did my portfolio of five strategies meet those goals, it far exceeded all of them. The five-strategy portfolio closed on November 29, 1999, up 107.93%.
Each of the five strategies started with $50,000, an even 20% of the portfolio. The strategies were selected to give the portfolio a well-balanced mix of workshop strategies. I wanted to try different holding periods so I picked three strategies that were rebalanced annually, one strategy that was rebalanced quarterly, and one strategy that was rebalanced monthly. The portfolio was traded at Fidelity Investments, which charges $14.95 a trade for under 1000 shares and an additional $0.03 for each share over 1000. Here the returns of the five strategies:
Note 1: The EYRP4+ is similar to the Foolish Four except that it always chooses the stock with the highest yield, buys a double portion of that stock, and then buys the next three RP stocks. If the highest-yielding stock is also the lowest-priced stock, it is skipped and the regular Foolish Four stocks are bought.
Note 2: The Relative Strength (RS) portfolio used several different RS screens. I switched as backtesting data became available that showed which screens had done best in the past. I started out using the Relative Strength-IBD screen, then switched to the Value Line-based Relative Strength-26 Week screen, and finally switched to the RS-Overlap that is described on the message board.
For my relative who owns this account, the results are what is most important. For the rest of us, what we can learn from this portfolio is most important. So here are five things that I learned from managing this portfolio.
Lesson 1: Keep it simple. Nothing I did here was hard. Of the five strategies, three have yet to be touched since the original buy. (The new selections will be made tomorrow.) It wasn't time-consuming. The strategies were pretty basic -- no cherry picking, no special sell strategies or doubling-up schemes; just good investments in tested strategies.
Lesson 2: Monthlies are great but so are the others. If you read the Mechanical Investing board, at times it seems like the only way to make money is with monthly screens. The problems with monthlies are high trading costs, more taxes (if in a taxable account), and more time. Yes, this year the monthly did come out on top. However, the two annual strategies that focus on growth, SPARK 5 and Keystone 5, also did great, and the PEG quarterly did almost as well as the RS strategy. In fact, it would have done better except an error in the PEG strategies had me in two of the wrong stocks one quarter. That affected the PEG negatively by about 20%.
Lesson 3: These strategies do work -- at least so far. A big issue for any Workshop investor is: Do the strategies really work or are they the result of data manipulation? I worry about that, which is why my original goals were to beat the market and not to match the historic returns. Today I have much more faith in these strategies. We have had real-time experience with them after the strategies have been described -- the gold standard of proof. Now, does this guarantee that these strategies will be successful in the future? You never know. Market conditions can change. However, the possibility that these strategies were simply datamining seems very unlikely to me today.
Lesson 4: Success requires patience. You might wonder how I learned this -- after all, it's only been a year, and a rather spectacular one at that. Well, despite the great returns, these strategies did not consistently go straight up. In fact, between April 9 and October 22 this portfolio lost money. This successful portfolio, which doubled in a single year, went six and a half months losing money. The portfolios spent more time going sideways and slightly down than they did going up and yet still doubled in one year. If you started in April, your patience may have been sorely tested, but it would have paid off.
Lesson 5: A portfolio of multiple strategies helps minimize volatility. Again, this doesn't show up just looking at the final numbers, but if you follow the progress on the message board you can see that when one strategy faltered, another would be there to pick it up. This is especially true of the much-maligned EYRP4+. During big drops, this strategy tempered the fall. Between April 9 and October 22, the EYRP4+ was up. For example, on Tuesday, the three pure-growth strategies plummeted. The portfolio dropped 4%. However, it would have been worse if the EYRP4+ hadn't gained 3.3% on the same day. This year the growth strategies ruled, but not all years are like this one. I believe strongly that having a value strategy can play a strong role in mitigating risk.
Finally, I realize that the size of this real-money port is beyond the means of many investors. So, to illustrate how a smaller portfolio might work, one that even has to pay taxes, I have started a second real-money demonstration portfolio using $35,000 from another relative. I'm dividing the 35K among three strategies:
Keystone EPS (annual) -- $10K
Spark 5 (annual) -- $10K
PEG 5 (annual?) -- $15K
Note: Most likely, the PEG 5 will be an annual strategy, but I may end up renewing it quarterly or a semiannually.
If you check the message boards you will be able to follow these strategies as the year progresses. Another banner year? A bummer year? Only time will tell.
Until next time, Fool on!