Workshop Portfolio

Foolish Workshop
It's Good to be an Investor Today

By Moe Chernick (Moebruin)

EL SEGUNDO, CA (Nov. 2, 1999) -- One of the first questions a new investor asks when coming to the workshop is, "If these strategies are so great, then how come people haven't been investing in them for years?"

There are many answers to that question. First, personal computers and the Internet played a huge role in making possible the research that identified the strategies and the communication between investors that fueled the ideas. Not all the data to run these screens was available until the mid-1980s, and at that point there was no data available for backtesting so there was no way to know which strategies might work. And it has only been recently that the markets have been truly accessible to the small investor. These are all part of the answer, but sticking with my recent theme of costs, I'd like to talk today about how the reduced cost structure of recent years lets investors do things today we only dreamed about 15 years ago.

As we discussed in my other cost articles, the most obvious cost is the commission. And, boy has the cost of commissions changed. I'm young enough that I never had to trade at a full-service brokerage house, but you don't have to be much older than I am to remember when that was the only game in town. And while most people like myself scoff at the prices full service brokers charge today, those are nothing compared to the prices they charged prior to the introduction of the discount brokers. That's right, back then you could expect to pay well in excess of a $100.00 for many of the trades we make so casually today.

In the '80s the discount broker came into being. However, the discount broker of yesterday was discounted only compared to Mr. Full Service Broker. If memory serves me, in the mid-1980s my discount brokerage firm charged roughly $50 to $60 for trades over $2000.00, and the cost structure was such that the more you spent, the more you paid. I still remember in the early '90s when I first learned about Kennedy-Cabot with their flat $30.00 trades and an even cheaper $25.00 fee if you bought less than 100 shares. I thought commissions couldn't possibly be cheaper.

So imagine implementing some of these strategies, especially the non-annual screens, when round-trip trading costs alone were routinely over 5% for the small investor.

We haven't even talked about our hidden cost yet, the spread. If the cost of the spreads in the monthly screens seemed high to you, well then, today you are probably getting your first hint why doing monthly screens was suicidal until about five years ago.

Until then, an investor looking to buy a small-cap, thinly traded stock like TTN would be lucky if the spread was less than half a point, and if it was on the Nasdaq you could expect to pay three quarters to a full point. I remember selling one of my early winners, Smithfield Food. The ask was 23 and the bid 22. Yes, a full one point spread. It took government intervention and a lawsuit to get the spreads down to the level they are at today. (Don't feel too sorry for the folks who collect the spread. The huge increase in share volume over the last decade has kept them off the streets.)

So if you were investing in a monthly strategy in 1990, it would take almost a 100% annual return just to break even. For quarterlies, it would take about 25%. Therefore, except for annuals, the kinds of strategies we discuss here were simply not possible then.

Luckily for us, the cost structure for stocks has changed and thus strategies that would have never been viable before are very viable today. This combined with the influx of information available cheaply on computers has created an environment that lets the Workshop thrive to the benefit of the individual investors.

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.