Workshop Portfolio

<FOOLISH WORKSHOP>

A Dozens Tutorial      

by David Forrest (workshop@fool.com)

7th Circle, Hell (March 5, 1999) -- In the seven months that I've been writing for the Workshop, there's been no topic that generates more e-mail for me than the "Dozens" models. I'm going to use the bulk of this lengthy article explaining what the Dozens method is and running through the actual logistics of it using the Keystone Dozens for 1998-1999.

What is the Dozens model? Like most good things, the Dozens model was designed based on the needs of people like you and me. Basically, many Fools wanted to know how they could invest a small amount of money each month in the various Workshop models and still benefit from the great returns they were seeing.

The Dozens method dictates that you buy a new stock every month. At the end of the year, you have 12 stocks, thus the "Dozens." The nice thing about this model is that you can invest just a small amount each month. You don't have to have $20,000 to get started. For our illustrative purposes here at the Foolish Workshop, we use 1000 fake Fool bucks each month. Heck, you could even use $500, too. [Note -- The model Dozens portfolios we talk about here in the Workshop are not real-money like the Rule Breaker, Rule Maker, Boring, Drip, and Fool Four portfolios.

How does it actually work? Each month you add $1000 and buy a new stock, giving you 12 stocks at the end of the year. Then what? At the 13th month, you need to do some shuffling. You see, the most stocks we want to have in a Dozens portfolio is 12. So, in the 13th month, we have to sell a stock and buy another.

Which stock gets sold? The oldest one. Therefore, if you buy a stock at the end of December in 1998, you'll sell that stock at the end of December in 1999 and buy the new, more appropriate stock. It's best to try and hold your stocks for one year and one day to capture the benefit of the long-term capital gains tax. For the sake of simplicity, we don't adhere to the tax rule here, but you should.

Let's recap briefly. The Dozens approach has you buying one stock per month until you get 12 stocks in the portfolio. From that point on, you sell the oldest stock in the portfolio and buy a new one. The question then becomes, what stocks, exactly, are you buying?

The answer depends on you and your favorite Workshop screens. The Dozens approach has you choosing the monthly stock based on your favorite screen. For the sake of this article, I'm going to run through a typical Dozens approach using the Keystone screen. Keystone, as I've said in the past, is my favorite of the screens we follow.

Let's turn back the hands of time and teleport back to December 31, 1997.

Keystone Dozens --
It's December 31, 1997, and it's time to pick our first stock. Looking at the Keystone rankings, we see that the number-one ranked Keystone stock is Fifth Third Bancorp (Nasdaq: FITB). The stock price on this day is $54.53 (we use the closing price for model purposes). With our $1000, we can buy 18 shares of Fifth Third Bankroll, pay our $8 commission, and have a little bit of cash leftover in the account. It's that simple. We've bought the number one Keystone stock with our $1000 and we'll wait until the last week in January 1998 to buy our second stock.

January 30, 1998 -- Following the same procedure as above, we'll add another $1000 and buy the top Keystone stock. Checking the rankings from January 30, 1998, we see that Schering Plough (NYSE: SGP) is our top Keystone stock. The price on this day is $36.19, so we use our $1000 to buy 27 shares of Schering. Now we own two stocks in our Keystone Dozens portfolio. I think you all get the basic idea by now, so I'll list the rest of the year's purchases without any explanations.

February 27, 1998 -- 11 shares of Pfizer (NYSE: PFE) at $88.50

March 27, 1998 -- Uh, oh. Houston, we have a problem. On March 27, 1998, the number one Keystone stock is... Schering Plough! We already own that one. Do we buy more of it? Actually, the answer is no. For the sake of the Dozens discussion, you do not buy a stock that already exists in the portfolio. So, what do you do? If the #1 Keystone stock is already owned, you move down the list until you hit one that you don't own. It so happens that # 2 is Tele-Communications Inc. (Nasdaq: TCOMA), so we'll buy that one.

32 shares of Tele-Communications (Nasdaq: TCOMA) at $31.06

April 24, 1998 -- 54 shares of America Online (NYSE: AOL) at $18.63
May 29, 1998 -- 24 shares of Dell Computer (Nasdaq: DELL) at $41.21
June 26, 1998 -- 22 shares of EMC Corp. (NYSE: EMC) at $44.39
July 31, 1998 -- 13 shares of Equitable Cos. (NYSE: EQ) at $75.06
August 28, 1998 -- 16 shares of Cisco Systems (Nasdaq: CSCO) at $63.16
September 18, 1998** -- 13 shares of Warner Lambert (NYSE: WLA) at $73
October 30, 1998 -- 19 shares of Philip Morris (NYSE: MO) at $51.13
November 27, 1998 -- 9 shares of Intel Corp. (Nasdaq: INTC) at $110.00

**September 18 was not the last week of the month, but there was a data problem on the last week of September, so we used the 18th.

Okay, that's all 12. (Remember, the first buy was on December 31, 1997), Now, we have to do the "shuffle" that I talked about earlier. On December 31, 1998, we have to sell the old stock and buy the new one. So, how does it work? It's pretty simple, actually.

Because Fifth Third Bancorp was the first stock we bought, we'll sell that. We'll also add $1000 and then figure out what to buy. We sell 18 shares of Fifth Third at $71.31, generating proceeds of $1275.58 after an $8 commission. Now, here's the part that some people get hooked up on. After selling Fifth Third, we have 11 stocks in the account. We also have a cash balance of $1890.90.

Rebalancing -- Instead of buying just $1000 worth of stock, we need to buy more than that. Why? Because the portfolio is worth more and we want to buy equal increments of stock to keep the portfolio balanced. We don't want any stock to represent too much of the portfolio.

Each month when you buy a new stock and sell an old one, you need to take the total value of the portfolio (including the cash you add) and divide it by 12. At the end of December, with the added $1000, the portfolio was worth $18,929. Divide that by 12 and we have $1577. Now, we'll need to buy $1577 worth of the # 1 Keystone stock. The # 1 stock at the end of December was AOL, with EMC second. We own both of those, so we go to # 3 and buy:

54 shares of Oracle Corp. (Nasdaq: ORCL) at $28.77

January 29, 1999 -- The portfolio is now worth (with the added $1000 for January) $23,522. Divide this by 12 and we see that this month's buy has to be $1960. We'll sell 27 shares of Schering Plough at $55.50. Given that, we'll buy the top stock that's not owned in the portfolio:

17 shares of Sun Microsystems (Nasdaq: SUNW) at $111.75

February 26, 1999 -- Finally, we're caught up. At the end of February, the portfolio was worth $23,673. Therefore, we'll buy $1972 worth of stock. First, we have to sell 11 shares of Pfizer at $131.94. Then, we buy:

22 shares of Texas Instruments (NYSE: TXN) at $89.19.

After all is said and done, the Keystone Dozens portfolio has risen 60.89% versus a Standard & Poor's 500 Index up just 9.88%.

WOW! We're done. We've made a complete trip through the logistics of a Dozens portfolio. I hope this is helpful to everyone who has had questions in the past. As always, if you have questions about how the Dozens portfolios are managed, please drop a question on our Workshop message board.

Fool on,

Bogey

Check out the latest file updates for the Workshop:
New Rankings | Workshop Returns


Workshop Portfolio


9/28/01 as of ~5:30:00 PM EDT

Ticker Company Price
Change
Daily Price
% Change
Price
AETAETNA INC NEW0.943.36%28.94
BABOEING CO(1.04)(3.02%)33.36
CATCATERPILLAR INC1.112.53%44.91
COGCABOT OIL & GAS 'A'0.693.59%19.90
DDDU PONT (EI) DE NEMOURS0.992.74%37.14
DGXQUEST DIAGNOSTICS(0.45)(0.73%)61.42
EKEASTMAN KODAK0.421.31%32.49
GMGENERAL MOTORS1.393.38%42.55
LHLABORATORY CORP AMER HLDG(NEW)1.141.42%81.21
MOPHILIP MORRIS COS(0.76)(1.55%)48.24
NEWPNEWPORT CORP0.261.90%13.97
NVRNVR INC(0.54)(0.38%)140.41
PKXPOHANG IRON & STEEL ADS1.097.51%15.61
PVNPROVIDIAN FINANCIAL1.075.64%20.04
QCOMQUALCOMM INC(0.40)(0.84%)47.16
RJRRJ REYNOLDS TOBACCO HLDGS(0.69)(1.19%)57.31
SLESARA LEE CORPUnchg.Unchg.21.09
UNFIUNITED NATURAL FOODS0.563.18%18.15
WMIWASTE MANAGEMENT(0.01)(0.04%)26.74

Overall Return -- total % Gained (Lost)
  Day Week Month Year
To Date
Since
Inception
(12/24/1998)
Workshop1.30%7.32%(12.02%)(20.66%)(18.91%)
Comparable S&P 500n/an/an/an/a(19.07%)
S&P 500 (DA)1.95%7.48%(8.33%)(21.22%)(14.88%)
NASDAQ2.02%4.71%(17.46%)(39.68%)(31.41%)
DJIA (DA)1.68%7.07%(11.07%)(17.86%)(2.22%)

Internal Rate of Return -- Annualized Rate of % Gained (Lost)
  Since Inception (12/24/1998)
Workshop(17.62%)
vs. S&P 500(17.63%)

Trade Date # Shares Ticker Cost/Share Price Total % Ret
1/8/0126MO40.9448.2417.82%
1/8/0122RJR50.1057.3114.39%
1/8/0167UNFI16.4518.1510.34%
12/24/9824CAT43.0844.914.24%
1/8/018NVR136.63140.412.77%
1/8/0140WMI27.4426.74(2.54%)
1/8/0150SLE22.5421.09(6.42%)
1/8/0161PKX17.8315.61(12.46%)
1/8/0115DD48.8337.14(23.95%)
1/8/0129AET38.1728.94(24.19%)
1/8/0139COG28.7519.90(30.79%)
1/8/0114QCOM75.5447.16(37.57%)
1/8/018LH134.6981.21(39.70%)
12/27/9918GM73.2642.55(41.92%)
1/8/0118BA59.5333.36(43.96%)
1/8/019DGX114.4961.42(46.35%)
12/27/9920EK65.0932.49(50.08%)
1/8/0120PVN55.5020.04(63.89%)
1/8/0115NEWP74.9613.97(81.36%)

Trade Date # Shares Ticker Total Cost Current Value Total Gain
1/8/0126MO$1,064.50$1,254.24$189.74
1/8/0122RJR$1,102.25$1,260.82$158.57
1/8/0167UNFI$1,102.12$1,216.05$113.93
12/24/9824CAT$1,034.00$1,077.84$43.84
1/8/018NVR$1,093.00$1,123.28$30.28
1/8/0140WMI$1,097.50$1,069.60($27.90)
1/8/0150SLE$1,126.88$1,054.50($72.38)
1/8/0161PKX$1,087.75$952.21($135.54)
1/8/0115DD$732.50$557.10($175.40)
1/8/0129AET$1,107.00$839.26($267.74)
1/8/0139COG$1,121.37$776.10($345.28)
1/8/0114QCOM$1,057.62$660.24($397.39)
1/8/018LH$1,077.50$649.68($427.82)
1/8/0118BA$1,071.50$600.48($471.02)
1/8/019DGX$1,030.44$552.78($477.66)
12/27/9918GM$1,318.62$765.90($552.73)
12/27/9920EK$1,301.75$649.80($651.95)
1/8/0120PVN$1,110.00$400.80($709.20)
1/8/0115NEWP$1,124.37$209.55($914.83)
 
Cash: 
Total: 
$10.80
$15,681.03
 

Key
• S&P 500 (DA) = dividend adjusted. Dividends have been added to the total return of the index.
• DJIA (DA) = dividend adjusted. Dividends have been added to the total return of the DJIA.

Note
Note: The Workshop Portfolio was launched on December 24, 1998, with $4,000 which was invested in the Foolish Four strategy. Approximately $15,000 was added on January 8, 2001, to support five additional mechanical strategies. At that time approximately $1000 was transfered out of the Foolish Four strategy to bring the Foolish Four into balance with the other strategies. (That's why the Foolish Four's overall return is not consistent with stock values.) Such rebalancing will take place each year among the strategies so that each will start out with approximately the same value at the begining of the year. No more cash additions are planned. The first four tables above show the overall performance of the portfolio. Below that we also track the performance of each component strategy. All transactions are announced publicly before being made, and returns are compared daily to the S&P 500 and the Dow. (Dividends are included in the yearly, historic and annualized returns.) Stocks are chosen using strategies developed by the Workshop community.