This article is part of our Rising Stars Portfolios series.
We're five months in and competing against a red-hot stock market, if you look at the S&P 500 overall. It's still probably too early to judge the success or failure of the Messed-Up Expectations Portfolio's performance, but early signs are encouraging. With no further ado, here we go.
Difference vs. SPY
|Transocean (NYSE: RIG )||11/2/10||$63.94||$77.95||
|Power-One (Nasdaq: PWER )||11/16/10||$8.82||$8.75||
|GameStop (NYSE: GME )||11/30/10||$20.06||$22.52||
|Transocean (2nd position)||12/9/10||$70.76||$77.95||
|Western Digital (2nd position)||1/25/11||$32.18||$37.29||
|SUPERVALU (NYSE: SVU )||2/1/11||$7.30||$8.93||
|Power-One (2nd position)||2/8/11||$8.83||$8.75||
|Ford Motor (NYSE: F )||2/24/11||$14.57||$14.91||
|Nam Tai Electronics (NYSE: NTE )||3/10/11||$7.23||$6.45||
|Ford (2nd position)||3/17/11||$14.45||$14.91||
|Nam Tai (2nd position)||3/31/11||$6.38||$6.45||
Source: Author calculations. SPY returns are dividend-adjusted. Differences are in percentage points. NM = not meaningful due to March 31 purchase date.
That's the blow-by-blow result. Not too bad. Of the 15 positions, 12 are in the black and eight out of 14 are beating the S&P 500 (not including yesterday's purchase of Nam Tai). Overall, my average position has beaten the alternative of investing in the S&P 500 (as measured by SPDR S&P 500 (NYSE: SPY ) ) by 2.75 percentage points.
However, because this is a real-money portfolio, begun with $5,000, with an additional $1,000 added at the beginning of each month, in order to determine how the portfolio including cash performed, we have to calculate the returns using Net Asset Value (NAV), just as a mutual fund does.
Following the instructions outlined here and here, the portfolio had returned 6.37% as of the end of March, five months after inception, versus SPY's return of 12.05%. The shortfall of 5.68 percentage points is a reflection of the drag produced by a bunch of nondeployed cash, which amounts to some $3,560 (plus another $1,000 this morning). However, over the next several months, I should begin to catch up to the S&P and pull ahead, assuming I can continue to find companies with messed-up expectations, as active investments are now greater than 50% of the total portfolio.
At the moment, I'm not even close to selling any of these positions. Except for Transocean, the market still expects very little of any of them today. And Transocean hasn't gotten to the point of having a "too-much growth" messed-up expectation, which would be a sell signal.
Reviewing several of these quickly:
- Transocean is moving further away from the Gulf spill, but still suffers from headline risk.
- The alternative energy market is still expected to grow, which will benefit Power-One, especially given what happened with nuclear power in Japan and how that's forcing countries around the world to revisit their own programs.
- GameStop had a good holiday quarter and gave a stronger-than-expected outlook for 2011.
- Ford's sales have been climbing even while it's been reducing incentives. I expect the same when it releases March sales numbers today.
- SUPERVALU is catching the eye of investors, with Barron's recently calling it out as a good turnaround stock.
So far, I've made 15 purchases of 10 different companies -- the latest was Nam Tai Electronics, currently suffering from concerns about Japanese supply lines. I'm planning to add new holdings and expand existing holdings as we move forward, so follow along both here and at my discussion board.