Monday, October 29, 2007

Mosaic (MOS) Continues to Lead Portfolio A1

The title is probably a considerable understatement, but what else can you say about a stock that is up 91% in only ten weeks in the portfolio?

The amazing run of The Mosaic Company (MOS) has helped to push Portfolio A1’s performance to a cumulative return of 14.15% since the portfolio inception on February 16, 2007. This is 8.67% better than the 5.48% returned by the benchmark S&P 500 index during the period.

Mosaic’s performance has triggered a number of thoughts about portfolio design, backtesting, and the likelihood of catching lightning in a bottle. Simply stated, in the 8 ½ months that Portfolio A1 has been up and running, it has purchased 27 stocks. Almost half of these stocks are up 50% during this period and 30% (MOS, DRYS, BRP, PCU, PBR, RIO, CNH, and SNDA) are up an astonishing 100% or more. The bottom line is that I believe it is possible identify stocks that have a high likelihood of doubling or tripling in one year (with attendant risk, of course) and build portfolio rules to maximize the probability of capturing those gains during the time they are held in one’s portfolio. I will expand upon this going forward, but Portfolio A1 should provide some evidence to support that contention.

There is one change to the portfolio: Navistar International (NAVZ) has been dropped and is being replaced by returnee PepsiAmerican (PAS), the beverage bottler. There are no other changes to the portfolio this week.

A snapshot of the portfolio is as follows:

13 comments:

Bill Luby said...

Two additional thoughts:

1) It is not lost on me that there is an extremely large BRIC component to that list of high performers

2) Had I not made a transcription error that accidentally forced the portfolio to sell RIO during the first week of the new portfolio, it is quite likely that this stock would have been held for a much longer period (and probably enhanced the portfolio's overall return as well)

Anonymous said...

Hi Bill,

What method are you employing to find your stocks? Why did you add PAS to the portfolio?

Thanks

Bill Luby said...

Hi anon,

I use Portfolio123.com and talked a little bit about that site and the functionality in a post two weeks ago, "Portfolio123.com: The Engine Behind Portfolio A1"

To answer your question a little more specifically, in this portfolio I use a stock ranking system that shares some common ancestry with the Balanced4 ranking system that Portfolio123 uses in their GARP portfolios. FWIW, both the Balanced4 ranking system details and the GARP portfolio rules are publicly available at Portfolio123.com.

Finally, PAS was added because it had the highest composite rank of all the stocks not currently owned in the portfolio...and also met certain purchase requirements I had established (minimum price, volume, market cap, etc.) as well as sector weighting requirements. FWIW, right now, the stock ranker has MBT as the #1 ranked stock overall.

I hope this helps,

-Bill

Anonymous said...

Hi Bill,

I will check out port123...thanks

What is your criteria for selling a stock?

Thanks again

Bill Luby said...

Regarding selling a stock, in Portfolio A1 (which is strictly a mechanical system), it is either a drop below a rank threshold (here the 99.5 percentile) of a drop of 20% or more from the high during the holding period.

(In my discretionary trading, I use a great deal of trailing stops to try to let my winners run.)

Cheers,

-Bill

Michael Lomker said...

Bill,

Have you made this a real money portfolio? Since you clued me in to P123 I have spent many hours messing around with it and running simulations.

I have a system that averages 60% annual but I'm not sure at what point you leave reality and are 'curve fitting'. I will find out next year since I plan to trade my system in February.

Bill Luby said...

Michael,

Portfolio A1 is not a real money portfolio. FWIW, all my real money portfolios are private, but have performed very nicely. To give you a sense of the real money performance, the Sharpe Ratios range from 2.23 on the high end to 0.39 on the low end, with a median of 1.53 (n = 9).

Curve fitting is a potential problem, but if you scour the message boards there, you will get some ideas on how to minimize/avoid that problem. If you don't see what you are looking for, ask some questions. It's a collegial group.

Good luck,

-Bill

Anonymous said...

Hi Bill,

How long have you been using 123? How does it perform in a bear market compared to a bull market?

Thanks

Bill Luby said...

I've been on Portfolio123 for almost 4 years. Regarding bull vs. bear markets, it depends upon the type of stock ranking system you develop and the buy/sell rules you implement. The portfolios I have developed are generally of the aggressive high beta variety (just check the equity curve above), but I have been able to keep drawdowns to what I consider to be an acceptable level, given the risk-reward profile.

Of course bull vs. bear market performance has a lot to do with how the system is designed and I have not put a lot of time and effort into developing systems (through P123) that are standout bear market performers. Still, the tools are there to pursue that type of approach.

Cheers,

-Bill

Andy said...

Bill,

I am going to try out Port123. Is it okay if I use you as the person that referred me?

Thanks

Bill Luby said...

No problem, Andy. I appreciate the acknowledgement.

Have fun with it and let me know what you think.

Cheers,

-Bill

Andy said...

Hi Bill,

I see you are using Balanced4e for Port123. Is that your own deviation of the Balanced4?

Thanks

Bill Luby said...

Andy,

Balanced4 is a very powerful ranking system, IMHO, that is worth playing with and tweaking.

I have a couple of variants that I have made public (Balanced4b and Balanced4c); I am keeping Balanced4e private for now.

Cheers,

-Bill

DISCLAIMER: "VIX®" is a trademark of Chicago Board Options Exchange, Incorporated. Chicago Board Options Exchange, Incorporated is not affiliated with this website or this website's owner's or operators. CBOE assumes no responsibility for the accuracy or completeness or any other aspect of any content posted on this website by its operator or any third party. All content on this site is provided for informational and entertainment purposes only and is not intended as advice to buy or sell any securities. Stocks are difficult to trade; options are even harder. When it comes to VIX derivatives, don't fall into the trap of thinking that just because you can ride a horse, you can ride an alligator. Please do your own homework and accept full responsibility for any investment decisions you make. No content on this site can be used for commercial purposes without the prior written permission of the author. Copyright © 2007-2013 Bill Luby. All rights reserved.
 
Web Analytics