By Moe Chernick (Moebruin)

EL SEGUNDO, CA (Jan. 6, 2000) -- 1999 was a year for the record books in the Workshop with many strategies returning over 100%, even the relatively lower-performing annual strategies. Almost everyone that invested in Workshop strategies this year has cause for celebration.

You can see returns from the screens we follow here officially at Workshop Rankings December 31, 1999, but to get a real feel for how the Workshop has done, check out this post by Jack Cade: Ledger, Part 1. In it, Jack lists the 1999 returns of all the strategies and hundreds of variations proposed and developed in the Workshop. Whew! It's an imposing list, but worth the time.

Some returns, especially the single-stock strategies, are not something people would reasonably be able to achieve with their own portfolios (we certainly don't recommend that anyone put all of his or her cash into a single stock!), but hidden in the list are the more frequently renewed versions of the screens that we have been tracking here. For example, the 10-stock Relative Strength (26 week) strategy we tracked here, which assumed that the stocks selected at the beginning of the year were simply held for a full year, returned 123%, but the 5-stock version that was rebalanced every quarter (13 weeks) returned 213%. No typo. And it's far from the best-performing strategy listed. By the way, if you don't recognize most of the strategy names, don't worry about it. Just look for the ones you are interested in. And you can always ask questions on the Foolish Workshop message board.

So there is great joy in the Workshop, but while you should enjoy your celebration, I caution you not to let the euphoria of the moment impact your investment plans for 2000. Otherwise you may be opening yourself up to risks that you should not be taking. In fact, if this week is any harbinger of what is to come, the euphoria may be short lived! In this article, I will discuss some of the mistakes that many investors make during times of such euphoria.

Mistake 1: Investing short-term money. Due to the euphoria, you invested every last penny in the market. If you made this mistake, I guarantee that you are not alone. As a young investor in 1987, I made this very mistake. Luckily for me, it was a relatively cheap lesson learned. If you did this, I suggest you step back and start over.

Start by reading or re-reading Todd Beaird's excellent series on Portfolio Allocation. If you are over-invested, get that money out of the market. Yes, by next week or next month this may look like a bad decision, but you don't want your bread and butter in the market, ever. If the market keeps declining, the hurt will only amplify, so take this as a lesson learned and get the cash you need out of the market now.

Mistake 2: Over-allocating your portfolio with monthly screens. None of the strategies enjoyed better success than those that rebalanced monthly (or every four weeks). However, the monthly strategies should only be part of a balanced portfolio and should only be used after your portfolio is large enough to support the additional costs AND longer-term strategies for balance. If you just started one of those monthlies with $2000 or $5000, you are probably beginning to feel the squeeze. Trading costs and spreads can eat up your profits fast. If this is your case, my recommendation is to lengthen your holding period.

If your whole portfolio is in monthlies you may want to rethink your plan and come up with a more balanced plan to implement. Don't panic on this as there is no reason to make the changes until you are sure of what you want to do.

Mistake 3: Giving up on screens that didn't rock in 1999. This year many of us have changed strategies based on the new backtested results that have been coming in. Basing your choice on the long-term returns is good. What worries me are the folks that jump into RS screens just because they rocked last year. I hear many people are abandoning Spark because it only returned in the upper 60s for them last year. (The annual portfolio we track here returned 93%, but portfolios started later in the year or adjusted more often had different returns.)

Spark's back record speaks for itself. When momentum rules, Spark won't be the best screen in your portfolio, but that doesn't mean it won't do the best next year. If you look at the current Spark screen you can see it will be the place to be in 2000 if stocks like those in the Rule Maker port start to rock this year. Keep your screens in balance and don't just invest in one or two types of screens if you can afford to branch out.

Mistake 4: Abandoning value screens. If you are one of the many that abandoned your value screens because they did poorly in 1999, you may want to reconsider. The fact that the value screens did so poorly is really no shock. It doesn't take a genius to figure out that last year people were buying stocks with very little regard to valuation. If people aren't looking for value then it should come as no surprise that the value screens performed poorly. Human nature says "abandon ship" when things go bad, but you can't leave without a logical excuse. So excuses for abandoning the Foolish Four and the BSP have been flowing. This is not unusual.

For example, I remember about a year and a half ago when the big game in town was the Unemotional Growth screen (UG). When the UG started doing badly, you should have seen the criticism on the boards about how Value Line takes too long to downgrade the timeliness of stocks and that timeliness was no longer such a great indicator. Now that dozens of screens relying on those timeliness rankings are doing great and people have found better alternatives to UG, there have not been any complaints about Value Line's timeliness ratings.

I believe that value screens do work. There was a short period last year when the value screens flourished. Value screens also provide you with at least a little protection for weeks like this. Although the downturns since I've been investing have always been short, the screen that has always done the best during those times has been my high-yield Dow strategy.

So take care if you are over-allocated in growth screens, especially momentum screens like relative strength. Think about re-evaluating your portfolio and getting some value back in. You might have to pay a price now if you've over-bought and need to divest, but any lesson learned is a good one as long as you learn the lesson.

In conclusion, the number one thing to do in any of the situations listed above is not to panic. It is easy to make one mistake and panic, which leads to a series of mistakes. So unless you have your short-term money in the market, don't do anything until you have thought it out and are sure you now have a well-balanced plan. A well-balanced plan should be one that you can live by whether this is the start of a long bear market or the market bounces back tomorrow. Once you have that kind of plan, implement it and stick with it.

Until next time, Fool on!