25-stock paper portfolio

Discussion in 'Journals' started by waditude, Aug 27, 2011.

  1. waditude

    waditude

    The objective of this journal is to present out-of-sample results of a backtested long-only strategy that I believe will outperform the S&P 500 by 10% per year using a diversified portfolio of 25 liquid stocks. Although I may own several of these stocks, this is a paper-traded model portfolio, not a real one. I have chosen a 25-stock portfolio to minimize the contribution of any one particular stock and make it less likely that any reported results are due to chance.

    The portfolio will be rebalanced every 4 weeks with the expectation that one-third to one-half of the positions will be replaced with each rebalancing. For ease of record-keeping, these rebalancings will not be staggered and I will not include commissions, dividends, or slippage in my reporting. Each of the 25 stocks will be equally weighted and purchased/sold on Monday's opening price. In actual trading, I would use discretion as to when to buy and sell.

    Even with broad diversification, I expect some that in some years there will be months in which the system underperforms the S&P 500 by 5% or more. I wish this wasn't the case, but it is a price I must accept.

    I understand the many risks inherent in backtesting. My expectation of beating the S&P by 10% is NOT based on backtests beating the S&P by this margin but rather assumes that out-of-sample results will not be nearly as good as backtested results. I am not trying to hit home-runs here or turn $100000 into $1000000 in a few years. Instead, I am looking for a realistic mechanical strategy with decent returns and no danger of blowing up when fully hedged. The objective is not to maximize returns but to outperform the S&P 500. In actual trading, I hedge my long positions with short positions when the market looks weak.

    The model portfolio will buy the following on Monday's open:

    AFAM
    BIRT
    CECO
    DORM
    FCFS
    FINL
    FRED
    FSTR
    HITK
    INSP
    JCOM
    KAI
    KFY
    LMIA
    LNN
    MKSI
    OVTI
    QLGC
    STNR
    SYKE
    SYX
    TECD
    TRLG
    UEIC
    VPRT
     
  2. waditude

    waditude

    From Monday's open to Friday's close

    S&P 500 -0.33%
    model -3.09%

    This week lost 2.75% vs the S&P


    What a crummy way to start a model portfolio. The last time the model underperformed by this degree was the first week of August when the S&P tanked. Before that, one must go back to January.

    Nonetheless, one week has absolutely no statistical significance. Nor does one month for that matter. I just felt like posting.
     
  3. waditude

    waditude

    From Monday's 8/29 open to 9/16 Friday's close

    S&P 500 2.65%
    model 1.38%

    So far, model has lost 1.27% vs the S&P.
     
  4. waditude

    waditude

    From Monday's 8/29 open to 9/23 Friday's close

    S&P 500 -3.52%
    model -6.51%

    So far, model has lost 2.99% vs the S&P - Not what I would like to see, but loses of this magnitude over a 4-week rebalance period are to be expected. The portfolio will rebalance on Monday's open with the following stocks:

    AIT
    CECO
    DORM
    EBIX
    FINL
    FRED
    FSTR
    GPX
    HIBB
    INSP
    JCOM
    LHCG
    LMIA
    LNN
    MNTA
    MTSC
    OPLK
    OVTI
    STNR
    SYKE
    SYX
    TECD
    TRLG
    UEIC
    VPRT
     
  5. How are you handling dividends, cap gains/loss and commissions?
     
  6. waditude

    waditude

    Oldtime.

    I am ignoring all of them.

    Dividends are unlikely to be more than a couple of percent per year, but should be sufficient to offset commissions at a discount broker.

    Anyway, it is time for a recap and 4-week rebalance.

    From Aug. 28 until now:
    S&P 500 +5.1%
    model portfolio +3.3%

    Portfolio has lost 1.8% versus the S&P 500 over the past 8 weeks. Certainly not an impressive start, but also not anything to get too worried about at this early stage.

    Rebalanced positions:

    CECO
    DWA
    EBIX
    FINL
    FRED
    FSTR
    FWRD
    GPX
    HIBB
    HITK
    INSP
    JCOM
    KAI
    LMIA
    MTSC
    OPLK
    OVTI
    STNR
    SYKE
    SYX
    TECD
    TXRH
    UEIC
    USPH
    VPRT
     
  7. KBaines

    KBaines

    >>>Portfolio has lost 1.8% versus the S&P 500 over the past 8 weeks. Certainly not an impressive start, but also not anything to get too worried about at this early stage.<<<

    Especially since no real money is involved. Never will understand these paper trading endeavors.
     
  8. N54_Fan

    N54_Fan

    How are you coming up with these and WHY would you want to ignore dividends? Dividends acct for about 50% of gains in most longterm portfolios when they are reinvested in the same stock. Also, if you look at many (I estimate ~50%) of those stocks that I looked at are in obvious downtrends. Why would you make a "long only" portfolio that has stocks in comfirmed downtrends? You would be better off in cash than these stocks or in choosing stocks starting new uptrends or at least consolidating and paying dividends. I dont get the methodology here....just seems random and haphazard guesses that you have made in trying to diversify this portfolio.

    I think you coould replace MANY if not almost all of these and come up with 25 or even only 10-15 that will outperform the S&P ESPECIALLY when you include dividends and still provide sufficient diversification.

    I would suggest the following 25 stocks instead:

    LLY, PG, CLX, CVX, EC, MSFT, INTC, AGNC, NNN, PSA, PFE, ABT, LMT, TGT, MCD, MO, PM, RAI, CAG, HNZ, DTE, D, ED, LINE, KMP.

    Every single one of these pay at least 2% dividend and most pay much more. Also all of these are either consolidating or in uptrends on a weekly chart. I just dont get why you chose these stocks on your list. WHY disregard dividends?....just does NOT make sense if your ulitmate goal is to beat the S&P and especially if you want to beat it by 10% in a mostly position trading type of "system".

    Please explain your "strategy"...

    BTW,...I suspect the 25 stock portfolio I listed will EASILY outperform your 25 stocks over the last part of the year. You should keep track to see. It took me all of 10 min to come up with these.
     
  9. I don't like it when people I invest my own money in give it back to me.
     
  10. N54_Fan

    N54_Fan

    Huh? What do you mean by this comment?
     
    #10     Oct 24, 2011