Workshop Portfolio Workshop Returns
Wrapping all the results into one tidy package

The Workshop has many different strategies. A central element in choosing a strategy is to compare the historical returns, which you can do using the table below. However, it is also important that you take into account trading costs and volatility, and that you are comfortable with the method each strategy uses to select stocks.

By Todd Beaird (TMF Synchronicity)
October 3, 2000

If you've been reading this space for a while, you should be familiar with all 12 of the official Workshop strategies, and some of the unofficial ones as well. But in the Workshop, mere familiarity tends to breed confusion. Last week we attempted to show how the strategies can be grouped into families with shared characteristics. Hopefully, thinking about the strategies that way will help provide some structure that makes it easier to remember who does what around here.

Numbers people will have lots of fun with today's column (I hope!). The rest of you can skip down to the conclusions below. What I have done is pull together the compound annual growth rates (CAGRs) and geometric standard deviations (GSDs, a measure of volatility) for most of the strategies we discussed last Thursday. The strategies are sorted by CAGR so that the highest returning strategies for each holding period will be at the top. This lets us see which strategies are best suited to various holding periods.

I have also calculated the ratio between the CAGR and GSD. The ratio is simply the CAGR divided by the GSD. There are more complex ways to look at the relationship between risk and return, but this is a quick method to see how much return we are receiving for a given amount of volatility. The lower the ratio, the more risk per unit of return.

I also ranked each ratio to make it easier to compare strategies. For example, among strategies traded annually, Keystone 100 is tops for return over the past 14+ years. However, when you look at the ratio ranks for both KeyEPS and the original Keystone, you see that they are less volatile per unit of return. Similarly, the RS-26 and RS-Overlap have very similar long-term average returns when rebalanced annually, but the Overlap version is less volatile.

Finally, please remember that these are the historical results (January 1986 through August 2000) for these strategies. Although we hope that these returns continue, we don't expect our strategies will perform exactly the same in the future. Don't get hung up on minor differences: If one strategy has a CAGR of 32% and another has a CAGR of 30%, they are essentially the same. Also, don't forget that some of these superb returns may be attributable to random chance.

Strategies rebalanced annually (average of 12 portfolios, one started each month):
Screen    CAGR     GSD    Ratio  Ratio Rank
Key100    34.15%  36.00%  0.949       8
PegO*     32.78%  35.41%  0.926      10
RS26      32.76%  40.29%  0.813      16
RSO*      32.04%  35.17%  0.911      11
KeyEPS    31.75%  28.44%  1.117       2
Plow      31.41%  29.83%  1.053       4
Keystone  31.37%  29.25%  1.073       3
Plow RSW* 31.36%  31.84%  0.985       7
RSW*      31.27%  36.94%  0.847      13
RS13      31.16%  30.08%  1.036       5
PEG13     29.28%  35.21%  0.832      14
PEG       29.13%  32.61%  0.893      12
RS4*      28.86%  34.74%  0.831      15
RS52*     28.37%  38.42%  0.738      18
Plow LD*  28.07%  35.30%  0.795      17
Spark     27.93%  27.69%  1.009       6
PEGRSW*   27.30%  37.79%  0.722      19
SparkRSW* 25.00%  26.72%  0.936       9
S&P500    17.00%  12.32%  1.380       1

Strategies rebalanced semiannually (average of six starts):
Screen    CAGR     GSD    Ratio  Ratio Rank
RS26      42.78%  43.55%  0.982      15
RS-O*     40.87%  38.66%  1.057       9
PEGRSW*   40.69%  35.89%  1.134       5
PEG-O*    40.44%  40.13%  1.008      12
RSW*      40.26%  44.97%  0.895      17
PEG       38.96%  29.53%  1.319       2
Key100    38.60%  34.03%  1.134       4
RS52*     38.37%  43.42%  0.884      19
RS13      37.25%  35.69%  1.044      10
Plow RSW* 34.49%  31.58%  1.092       8
PEG13     33.50%  34.25%  0.978      16
KeyEPS    32.76%  31.81%  1.030      11
RS4*      32.31%  32.24%  1.002      13
Plow      31.65%  28.82%  1.098       7
Spark     31.10%  28.12%  1.106       6
Plow LD*  30.94%  30.98%  0.999      14
Keystone  30.80%  34.77%  0.886      18
SparkRSW* 26.97%  23.09%  1.168       3
S&P500    16.35%  11.27%  1.451       1

Strategies rebalanced quarterly (average of three starts):
Screen    CAGR     GSD    Ratio  Ratio Rank
RS26      47.83%  43.61%  1.097       5
RSW*      45.34%  47.29%  0.959      14
PEG-O*    45.31%  45.05%  1.006       8
RS52*     43.95%  45.75%  0.961      13
RS-O*     42.24%  38.11%  1.108       4
PEGRSW*   41.88%  43.82%  0.956      15
PEG       41.75%  39.17%  1.066       6
RS4*      38.63%  33.59%  1.150       3
RS13      37.03%  38.79%  0.955      16
Key100    37.00%  43.91%  0.843      18
PEG13     35.01%  36.42%  0.961      12
Plow RSW* 34.09%  29.27%  1.165       2
KeyEPS    32.87%  35.70%  0.921      17
Spark     31.36%  30.31%  1.035       7
Plow LD*  30.61%  31.54%  0.970      11
Keystone  30.15%  37.37%  0.807      19
Plow      28.64%  29.26%  0.979      10
SparkRSW* 26.41%  26.67%  0.990       9
S&P500    16.62%  11.27%  1.475       1

Strategies rebalanced monthly:
Screen    CAGR     GSD    Ratio  Ratio Rank
PEG-O*    58.77%  37.35%  1.574       2
PEG13     57.09%  32.52%  1.755       1
RS-O*     56.57%  42.54%  1.330       5
PEGRSW*   55.09%  42.18%  1.306       7
RS13      54.57%  56.18%  0.971      12
RS52*     51.92%  38.24%  1.358       4
RS26      51.32%  44.43%  1.155       9
RSW*      50.17%  45.15%  1.111      10
PEG       45.00%  42.17%  1.067      11
RS4*      42.47%  36.58%  1.161       8
Plow RSW* 35.72%  27.33%  1.307       6
KeyEPS    35.48%  38.83%  0.914      15
Plow LD*  34.06%  35.92%  0.948      13
Key100    31.75%  44.42%  0.715      19
Keystone  29.05%  37.52%  0.774      18
Plow      28.63%  30.76%  0.931      14
Spark     25.77%  30.40%  0.848      16
SparkRSW* 24.41%  29.93%  0.816      17
S&P500    17.05%  11.81%  1.444       3

Whew! Those are a lot of numbers. Some quick observations:

1. In general, more frequent trading (monthly or quarterly) resulted in the highest historical CAGRs. Before you jump in, though, remember that past performance is no guarantee of future results, but the higher trading costs of these strategies are guaranteed. Don't invest in monthly strategies until your portfolio is large enough to bear those higher costs.
   
   
2. All of these strategies are much more volatile (have higher GSDs) than the S&P 500 Index. If you think the stock market can be volatile, our screens can be a veritable roller coaster ride. Before you invest, be sure that you know your risk tolerance.
   

So, how do you know what strategies to choose for yourself? We recommend that you understand how and why each screen selects stocks. Then be sure to select a strategy that has reasonable costs for your portfolio size. Don't expect superior returns to compensate for higher costs. We also recommend that you select a blend of screens to further reduce volatility.

Also, be sure that mechanical investing is right for you. Those returns look pretty good. We wouldn't be quoting them if they didn't, and that's something to keep in mind when considering Workshop-style investing. Don't be seduced by backtested returns. Mechanical investing needs to make sense to you as an investing approach because there are no guarantees that those returns will continue. One thing is certain: If you are just going by the returns and not prepared for the volatility, you will be very disappointed.

There are many ways to invest out there, and our feelings won't be hurt if you choose some other method, be it Rule Breakers or an index fund. One of the first rules of investing is to choose a strategy that fits your personality so that you will have the discipline to follow it through good times and bad.

Last of all, the sharp-eyed among you might have noticed that the S&P 500 is at the bottom of the rankings in terms of CAGR but is at or near the top in terms of ratio. The only strategies with higher ratios are the monthly variants of PEG-Overlap and PEG13. What does this mean? To find out, tune in next week when we discuss something called the Sharpe Ratio. We'll see you then -- same Fool time, same Fool channel.