Workshop Portfolio

<FOOLISH WORKSHOP>

Which Strategies to Use? Part 3: Limited Funds      

By Moe Chernick (MoeBruin)

EL SEGUNDO, CA (August 17, 1999) -- Correction: In previous articles, we talked about the PEG screen and its terrific returns. Unfortunately, there was an error in the screen that has been used in my articles and in determining the Workshop Current Ranking. There are two places in the screen where I referred to the "P/E Last 12 Months" variable in Value Line. This was an error. To match the backtested returns, the variable "Current P/E" should be used in its place. Thank you MI contributor Peter Kuperman for finding this error.

Last week I introduced you to Arlene. Arlene is just starting out on her first job. Arlene has $5,000 in savings and plans on saving an additional $1,000 a month. Arlene wants to know if she can invest in the workshop strategies and, if so, how best to do it.

The answer is that Arlene definitely can start investing in the workshop strategies. First, Arlene needs to open a regular brokerage account and a Roth IRA account at a deep discount brokerage firm. At Arlene's level, every dollar in brokerage fees counts; she should try to find a broker whose trading fees are less then $10 a trade. Arlene can find plenty of information on discount brokerage firms at the Discount Brokerage Center.

After reading all the information about the screens, Arlene decided that there are three screens in which she would like to invest: the RP4 for value investing, the Keystone EPS for large capitalization growth stocks and the PEG for both large and small capitalization growth stocks. You may ask, how can Arlene afford to be in three strategies? It is a little complicated but worth the effort.

First, Arlene should open the IRA with $2,000 from savings, taking advantage of the Roth's tax benefits. Arlene should also plan on setting aside her November and December savings so that she can put another $2,000 in her Roth account on January 1st. Which screen to use? For the Roth, go with the PEG screen. Arlene should buy the full PEG 4 today. In January, she should add an additional $2,000, sell her PEG 4 stocks and buy the current stocks on the screen. From here on, Arlene will rebalance her PEG screen annually. Once Arlene builds up some equity in her Roth, she will shift her PEG to a shorter holding period.

Arlene will invest her other $3,000 and her savings for September and October in an index fund. She will keep that money in an index fund until the end of the year. In January, Arlene will take that money and start her Keystone EPS strategy. She will invest equally in all five stocks and annually rebalance and reinvest. (Tax note: investing in a mutual fund for a short period and at the end of the year might have several tax implications. First, you will pay taxes on any growth of the fund's NAV. More importantly, you pay taxes on any dividend and capital gains distributions, which most funds make towards the end of the year. You can call the fund for specific details.)

Starting in January 2000, Arlene will invest her $1,000 monthly savings in the following way:

January -- Top RP4 stock
February -- Top PEG stock
March -- Top RP4 stock not already owned
April -- Top PEG stock not already owned
May -- Top RP4 stock not already owned
June -- Top PEG stock not already owned
July -- Top RP4 stock not already owned
August -- Top PEG stock not already owned
September and October -- index fund to hold for Keystone EPS
November and December -- money market fund to hold for Roth.

The above will be Arlene's investing pattern for at least the next couple of years. In January of 2001, Arlene will sell the four PEG stocks she bought during the year, taking a tax hit, and will buy the new stocks on this screen, which she will hold for a year. This is done to take advantage of seasonality, and she can have the full screen versus four pieces. With the RP4 stocks, Arlene will use the same strategy but wait until January of 2002 to sell those stocks. This is because the RP4 works better long term, so holding the original stocks over a year makes the most sense from an investment and tax standpoint.

In January of 2001, as in every subsequent year until retirement, Arlene will be adding money to her Roth IRA from her money market fund, and to her Keystone EPS screen from her index fund.

The combination of the RP4, PEG and Keystone EPS gives Arlene a great portfolio. Some financial Fools calculated that this combination of Foolish strategies gives the best risk-adjusted returns. It won't be long until Arlene is truly surprised at how fast her investments grow.

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.