Second Portfolio Group

The second group of stock portfolio is aimed mainly at smaller cap stocks. While not specifically searching for small caps, the results tend to bring up smaller stocks, simply because the higher rates of return and growth are less available to huge companies due to the matter of scale.

These portfolios start with a search for X factors and then the survivors are compared to my proprietary ranking system. If one wanted to try and duplicate them on one's own, one could run the screens, then cross reference the results with a major 'rating' agency, such as S&P's STARS, MSN's StockScouter, or Motley Fool's CAPS ratings (although one of the systems uses CAPS ratings as a screen.)

To the portfolios. The first (CAPS) is run through www.fool.com and uses their screener in the CAPS section. I search for stocks currently rated 4 or 5 stars, then screen for ownership (both management and funds), and high rates of return and growth. I look for companies with EPS and revenue growth, gross margins, and ROE of at least 20-30 per cent. This will usually give 15-25 stocks. They are then culled as noted above. When stocks fail the initial screen, get a bad rating from the proprietary system, or drop a set percentage (I use 8-10% loss depending on the overall market performance), they are sold.

The second is based on Joel Greenblatt's The Little Book that Beats the Market. His formula involves finding stocks are that amongst the highest in both earnings growth and ROI. I run a screen for that and then cull as noted above. He recommends holding for a year then replacing if they no longer qualify or keeping if they still qualify. I'm using it a shorter term system and sell them under the same rules as the CAPS portfolio.

The third system is a value oriented system. I screen for low price to sales and price to earnings, relative to industry averages (not S&P). These are then run tracked until their 50 day MA crosses the 200 day then they are bought. They are held til no longer qualify or drop in price.

They're all pretty simple and straightforward. They are still in the testing phase (particularly the Greenblatt variant) so we'll see how they perform. These portfolios I update each weekend, so each Monday, I'll post new views of the ports and try to remember to note any adds or drops. (this is a hobby, and sometimes the trading side intervenes)



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(results as of 1/7/09)