Condition
|
Bear Market
|
|||
S&P Target
|
1240
|
|||
Small Portfolio
|
IAU & XLF
|
8.16%
|
||
Hedge
|
XLU
|
-4.62%
|
||
Position
|
Date
|
Return
|
Days
|
Call
|
GCI
|
7/14/2011
|
1.29%
|
304
|
Hold
|
CSGS
|
10/3/2011
|
30.78%
|
223
|
Hold
|
NLY
|
10/25/2011
|
8.75%
|
201
|
Hold
|
DD
|
10/27/2011
|
14.70%
|
199
|
Hold
|
KBR
|
10/27/2011
|
2.72%
|
199
|
Hold
|
VG
|
10/27/2011
|
-46.50%
|
199
|
Buy
|
TTM
|
11/30/2011
|
64.67%
|
165
|
Hold
|
BT
|
1/4/2012
|
7.34%
|
130
|
Hold
|
PDLI
|
3/7/2012
|
6.73%
|
67
|
Hold
|
CLF
|
3/19/2012
|
-22.31%
|
55
|
Hold
|
S&P
|
Annualized
|
0.64%
|
||
Small Portfolio
|
Annualized
|
8.57%
|
||
Mousetrap
|
Annualized
|
13.19%
|
||
Hedged
|
Annualized
|
8.34%
|
When I started this test on 5/31/2011, I was very specific
in my choice of filters. The technical
filter measured long term volume-breadth to price-strength ratios in 98
industry groups. The fundamental filter
was Greenblatt’s so-called “Magic Formula”, ranking stocks according to their
12 month trailing earnings yield and return on total capital.
Greenblatt’s filter wasn’t necessarily the best, but it was
the easiest to adapt to my own model. It
also had the added advantage that it was being tracked in an automated
portfolio on www.validea.com.
I like validea – a lot.
I especially like their Benjamin Graham inspired “Value Investor”
portfolio. But I had tested Greenblatt
in real time for two years and found that it did well during that time period,
and validea showed it performing well enough to use for my own Mousetrap test.
My test wasn’t to see if Greenblatt’s filter would work, but
instead to see if my technical filters could add value to his fundamental
selection method.
So I have to be honest that I was disappointed when my
hybrid model wasn’t showing quite the advantage over the S&P I was hoping
for. Yes, that is a double digit lead up
there, but not in the target range I was hoping for.
What I did not realize until Friday was that Greenblatt’s
formula was having one of its worst years on record. While my own model is up at a 13% annualized
rate, Greenblatt’s is DOWN 16%!
These are the selections on the Greenblatt annual portfolio
that were selected on 7/8/2011:
7/8/2011
|
$137.48
|
$91.47
|
-33.50%
|
||
7/8/2011
|
$26.18
|
$23.89
|
-8.70%
|
||
7/8/2011
|
$31.61
|
$38.59
|
22.10%
|
||
7/8/2011
|
$31.41
|
$27.83
|
-11.40%
|
||
7/8/2011
|
$44.84
|
$36.97
|
-17.60%
|
||
7/8/2011
|
$20.23
|
$24.69
|
22.00%
|
||
7/8/2011
|
$38.48
|
$33.46
|
-13.00%
|
||
7/8/2011
|
$7.91
|
$4.01
|
-49.30%
|
||
7/8/2011
|
$8.39
|
$8.47
|
1.00%
|
||
7/8/2011
|
$22.72
|
$6.21
|
-72.70%
|
||
Average
|
-16.11%
|
On 7/8/2011 the S&P closed at 1343.80. Friday it closed at 1353.39. Basically flat for the year, but certainly
better than a 16% loss.
The fact that I was holding my own using the same filter
shows promise.
As for the news…
We continue to see the slow train wreck of a secular bear
market, with the Europeans squabbling over how to hold the Euro together
instead of trying to find a way to save their economies. As long as they have the wrong goals, they
won’t even be able to begin the healing process.
Over here we are having an energy revolution in the US. It’s not just natural gas, but land based
drilling has actually increased in the last 3 years. You’d never know from the President’s own
stated antipathy to natural resources, but it’s happening nonetheless. If oil drilling is increasing in spite of
political roadblocks, it just may be powerful enough to pull our economy out of
danger.
It’s impossible to tell.
We can make models that look to the past, but a secular market changes
the rules.
In the mean time, the S&P wasted a year, Greenblatt had
a mini-disaster, and the Mousetrap did okay.
Two more weeks will wrap up the beta test, and I’ll give a more detailed
report then.
Tim
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