Workshop Portfolio

<FOOLISH WORKSHOP>

Which Screens to Use, Part 2      

By Moe Chernick (moebruin)

EL SEGUNDO, CA (August 10, 1999) -- In a previous column, we discussed general criteria to use in developing a portfolio containing the six strategies that have been discussed either in this area or in the Foolish Four area (i.e. Unemotional Growth, Keystone, Keystone EPS, PEG, the Foolish Four, and Beating the Dow). Today's discussion will focus on applying that knowledge to come up with appropriate portfolios for three fictional investors.

Our first investor, Eric, is 35 years old and married with 1 kid. Eric has $50,000 in an IRA account. Eric can afford to be aggressive, since he is at least 25 years away from needing to withdraw from his IRA. However, Eric also wants some balance in his portfolio. Therefore, Eric decides that he would like 20% of his portfolio in value stocks and 80% of his portfolio in growth stocks. Eric is afraid of the volatility of small stocks and prefers large companies, so he favors being at least 75% invested in large company stocks. Since this is an IRA and since Eric enjoys keeping an eye on his investments, Eric is unconcerned about the holding period of the strategies he uses.

The following mixture of strategies fits Eric's requirements perfectly:

$10,000 Foolish Four
$12,500 PEG4 quarterly
$27,500 Keystone EPS

This portfolio gives Eric 13 stocks and an allocation that fits his needs. It puts most of his money in the big names he prefers but lets him get a taste of small stocks with the PEG screen. If Eric feels uncomfortable having too much of his portfolio in one strategy (Keystone EPS), an alternative would be to split his largest block of cash between the Keystone EPS and the standard Keystone. Since the Keystone and the Keystone EPS pick many of the same stocks, the two Keystone portfolios should probably have start dates that are at least 2 months apart.

Our second investor, Wendy, is 65 years old and retired with a $1,000,000 investment portfolio. She has determined that she only needs to withdraw $50,000 a year in cash from this portfolio. Because she is retired, she wants most of her money in value stocks and in blue chip stocks, however, because she only needs an annual withdrawal of 5%, which is far below the long-term market return, she is willing to be fairly aggressive with about 30% of her money.

The following breakout meets Wendy's needs:

$300,000 Foolish 4
$300,000 Beating the S&P
$200,000 Keystone EPS
$50,000 PEG4 Annual, January Start
$50,000 PEG4 Annual, July Start
$100,000 cash

Wendy's allocation gives her a nice base with the RP4 and BSP, which should allow her to earn more than an index fund. By adding in Keystone EPS and PEG Wendy broadens her base, diversifies her portfolio, and increases her potential returns. She also leaves enough in cash to pay for two years' worth of expenses.

Our third investor, James, is 45 years old and plans on working for 15 more years. He works for a company that has a good pension plan that will pay him a comfortable pension for life at retirement. James also has roughly $200,000 in a 401(k) plan that he Foolishly invests in an index fund. In addition, James has another $200,000 available for investing in strategies. James wants his $200,000 in almost pure growth strategies. This is because he has a nice fixed pension and he already has his 401(k) locked into an S&P index fund. Through the S&P 500 fund he already has a significant portion of his money in large company stocks, therefore he is willing to allocate up to 75% of his additional money into small-cap stocks. To qualify for long-term capital gains taxes, James wants to invest solely in annual strategies.

James chooses the following:

$50,000 Keystone EPS
$75,000 PEG Annual January Start
$75,000 PEG Annual July Start

This allocation meets his needs and gives him 15 stocks. While James is happy with his selections, he really wishes he could diversify between more than two strategies. What James has discovered is that the six strategies we are discussing really aren't enough to meet his needs. Luckily for James, there are still other strategies out there that may meet his needs, including the Spark 5, RS, and Formula 90. All of these strategies will be discussed in upcoming articles.

Finally, there is a fourth investor we did not discuss today. Her name is Arlene. Arlene is just starting out on her first job. Being a "Foolish" person, she will be saving as much money as she can, because she knows the power of time when it comes to compounding returns. Sooner is always better.

Arlene's situation is similar to that of many new investors who have new savings coming in but don't yet have large chunks of money to drop into a couple of the strategies. Is Arlene out of luck? No. In fact, like the others, there are multiple possible ways she can invest in these strategies. In the last article of this series I will focus on Arlene and discuss what I consider to be some of the best ways for her to invest in these strategies.

Until next time, 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.