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:

Portfolio A1 Continues to Close the Gap on SPX

From the department of small victories comes the news that for the third week in a row Portfolio A1 has taken a small bite out of the gaping performance hole between the portfolio and the benchmark S&P 500. That performance gap, which peaked at 17.5% three weeks ago, has now been sliced to 9.9%.

The Mosaic Company (MOS), a fertilizer producer, has been leading the charge back to respectability, with a 19.3% gain in three weeks. New addition DryShips (DRYS) was up 7.8% in its first week in the portfolio.

Two companies have been dropped from the list of holdings: CNH Global (CNH), despite a 10% return during its holding period; and Western Refining (WNR), which departs with a 7.3% aggregate loss. These companies are replaced by two higher ranking stocks: Sanderson Farms (SFM), a poultry producer; and Navistar International (NAVZ), a returnee to the portfolio after a one month hiatus. Navistar has been in the news lately for its diesel-hybrid technology as well as its armored vehicles.

There are no other changes to the portfolio this week.

A snapshot of the portfolio is as follows:

Portfolio A1 Slowly Closing Gap on SPX

For the second week in a row, Portfolio A1 has taken a small bite out of the gaping performance hole between the portfolio and the benchmark S&P 500. What was a 17.5% gap two weeks ago is now down to a slightly more manageable 11%.

The two agriculture-based holdings, Mosaic (MOS) and CNH Global (CNH), continue to lead the resurgence, up 16.8% and 9.5% respectively in the two weeks they have been in the portfolio.

Speaking of bright lights, I was more than a little surprised to see the portfolio drop PepsiAmerican (PAS) this week. The Minneapolis-based bottler was added to the portfolio three weeks ago on the strength of very solid fundamental numbers across the board and has been very strong technically, making a new 52 week high on Friday (and again this morning)…but apparently an 8.8% gain in three weeks is not good enough to keep it from yielding its slot in the portfolio to shipping juggernaut DryShips (DRYS), a company that is up almost 500% in the past year and yet still manages to sport a P/E under 13.

From my vantage point, it appears that adding DRYS is an implicit endorsement of continued global economic growth and a move away from a more conservative food and beverage play. Even though the mechanical system behind Portfolio A1 doesn’t use this type of market logic in its decision-making, this does not stop me from putting my interpretive spin on what comes out of the black box.

There are no other changes to the portfolio this week.

A snapshot of the portfolio is as follows:

Portfolio A1 Appears to Find a Bottom

After four weeks of performance that you wouldn’t want to be downwind of, it seems appropriate that it took a new addition to the portfolio – and a fertilizer company at that – to turn around Portfolio A1. The fertilizer company, Mosaic (MOS), surged 14% last week, while the other portfolio newcomer, agricultural equipment maker CNH Global (CNH) posted a weekly return of 5.7%. For now at least, the agricultural theme is working.

The aggregate portfolio statistics are still on the ugly side, with the portfolio down 12% since the February 16^th inception, well behind the benchmark S&P 500’s 1.6% gain during the same period. With a Sharpe ratio of -0.72, a winning percentage of 36%, and a maximum drawdown of 29.9%, one has to look long and hard to find a silver lining in the portfolio’s performance. Still, I will ride this portfolio out through the end of the year, at which time I will introduce a new portfolio with a strong discretionary component, as I outlined last week.

This week Portfolio A1 swaps BRIC telecoms by saying goodbye to Moscow-based Mobile TeleSystems OJSC (MBT) and replacing it with Brasil Telecom Participacoes (BRP), an ADR that the discretionary trader in me likes a great deal. There are no other changes to the portfolio this week.

A snapshot of the portfolio is as follows:

Portfolio A1 Looks to Ag to Stop the Bleeding

The big story for Portfolio A1 is the recent drawdown, which is now registering a peak to trough drop of 29.7%, approximately triple that of the S&P 500 index benchmark. Since its inception (2/16/07), Portfolio A1 is now down 18.2%, vs. a 0.7% drop for the S&P 500.

Clearly, this has not been the place to have your money during the liquidity crisis – and the performance of this portfolio has given me a fair amount to think about. First of all, I usually have target drawdowns beyond which a portfolio or trading system automatically gets consigned to the trash heap. As I am an aggressive investor, the drawdown threshold usually falls in the 30-40% range. With Portfolio A1 now hugging the 30% drawdown line, I am tempted to shut it down. The question, however, becomes what to replace it with or whether to even bother with this portfolio feature on my blog. Here is my thinking at the moment: I will keep Portfolio A1 up and running until 1/1/08 or it reaches a 40% drawdown, whichever comes first.

Starting 1/1/08, I will unveil a new portfolio that is a hybrid between an automated system like Portfolio A1 and a discretionary system. As a result, it will incorporate more of my contemporaneous thinking about the markets and about individual stocks. It should also be a portfolio for which I feel greater ownership and accountability.

I toyed with a bunch of other ideas about what to do with this space on the weekend, but I kept coming back to my desire to highlight a specific portfolio and specific stocks. I look forward to the transition and hope that in the remaining 4 1/3 months, Portfolio A1 can regain some respectability.

Note that Portfolio A1 has finally decided to drop former high fliers Terex (TEX) and Southern Copper (PCU), replacing them with two companies with a strong agriculture component: Mosaic (MOS), a fertilizer company; and CNH Global (CNH) a Dutch manufacturer of agricultural and construction equipment.

A snapshot of the portfolio is as follows: