Workshop Portfolio

<FOOLISH WORKSHOP>

How to Lose Money with Winning Strategies      

By Moe Chernick (moebruin@excite.com)

Reseda, CA (June 1, 1999) -- One common mistake of new Workshop investors is that they chase the stock screen that has the best recent results instead of selecting and sticking with a strategy based on the merits of the screen, its long term risk, and how it fits into their overall, long-term investing strategy.

Results for these investors are usually disappointing, as they move in and out of various strategies -- often at the worst possible time.

Let's look at how chasing returns can turn two great mechanical investing strategies into a net loss. Because I am using actual results, I will start this example on November 30th of last year. On November 30th, Investor A (let's call him Alvin) invested $50,000 in a Foolish Four variation. Investor B (Bob) invested the same amount in the RS-IBD Monthly strategy. (In a monthly strategy, the stocks are renewed every month rather than yearly as with the Foolish Four.)

By April 9th, Alvin's $50k was worth $55,200 -- a respectable 10.4% gain. Bob's $50k did much better, however. His portfolio was worth an incredible $111,600, a gain of 123%. (Yep, that RS-IBD was hot!)

Alvin begins to question why he invested in the Foolish Four when he could have been making big bucks in RS-IBD. So he makes the move and switches his money out of the Foolish Four and into RS-IBD.

Fast-forward six weeks. Alvin is having heart palpitations. The RS-IBD Monthly strategy is showing a 14.5% loss since he made the switch. His original $50k investment is now worth only $47,195, a net loss of 5.6%. Alvin is now thinking of putting his money back in the Foolish Four. Why? Because while RS-IBD dropped 14.5%, the Foolish Four went up 11.9% over the same period. If he had stayed in the Foolish Four, his $50k would now be $61,765, a gain of 23.5%.

By changing strategies in midstream, Alvin lost $14,570. Bob, however, is still doing great despite the price drop. At $96,775, his $50,000 is still up an incredible 93.6%.

The above example demonstrates the importance of having a good plan and a long-term perspective. Alvin was focused on short-term results. He took two winning screens and chased his way to losing results. He didn't have a plan, or -- at the least -- he was not carrying out his plan with conviction.

This example also demonstrates why using multiple screens is a good way to get market-beating returns while reducing your volatility. Enter Investor C, Charlene. She also started a $50k portfolio on November 30th. She decided on a mix of 50% value stocks and 50% high-risk growth stocks. To meet that goal, Charlene invested $25k in the Foolish Four and $25k in RS-IBD Monthly.

By April 9th, Charlene's portfolio had climbed to $83,350 -- not as good as Bob's but much better than poor Alvin's. Of course Charlene stuck to her plan, and on May 21st, after RS-IBD's drop, her portfolio was worth $78,550 for a net gain of over 56%. While Charlene's results were not as good as Bob's, she still had tremendous returns and much less volatility. Between April 9th and May 21st, Charlene's portfolio went down by $4,800, compared to Bob's loss of $14,825.

Of course, there's no guarantee that following a plan won't generate losses, too, especially in the short term. But your chances of coming out ahead are far better if you make a plan and stick to it than if you chase the latest, greatest returns.

Fool on!

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.