Portfolios by Goal
Buy by Portfolios
Stocks are almost always selected at Wenzel
Analytics as a group or portfolio that meet a specific set of criteria. Just as
a life insurance actuary can give probabilities for someone of my age, gender
and characteristics, but can’t tell me if it will be me or someone else, both
statistics and qualitative evaluations work better for a portfolio of stocks
than for trying to pick a single winning stock. I keep experimenting with a
portfolio of singly selected stocks but find over time it only gives market
returns.
Passive investors go to the other extreme.
Buying funds consisting of 500 or 1,000 positions based on predictably
outperforming factors may work, but often not consistently and even then by a
relatively insignificant advantage. A wide net gathers too many losers along
with the winners. It works for those wanting market volatility and market
returns. Passive investors are rarely passive. They actively pick from an
assortment of passive funds, and often actively buy and sell at the wrong
times. The average fund has twice the returns of the average investor owning
funds.
So our dominant approach is to buy stocks in
portfolios consisting of seven to fifteen positions. I look at the performance
of individual positions, especially when monitoring for when to sell, but pay
more attention to the portfolio than to the individual positions. Therefore,
performance is reported here by portfolios rather than by individual positions.
Portfolios by Goal and Methodology
Each client has a different balance for the
goals of their investments. The overall stock market is by far the dominant
variable in determining the performance of most stocks. Goals, and portfolios,
fall into four categories relative to the market.
1.
Be offensive and exceed
the market.
2.
Be defensive and exceed in down markets.
3.
Match the markets.
4.
Be independent or
uncorrelated to the market.
As a money manager I use a balance of three
different methodologies or strategies in determining the criteria or screens
used to create each portfolio for each client.
1.
A strong logic, rationale or story
is the persuasive force for some portfolios.
2.
Some portfolios are created from tested sources
such as newsletters or experience, usually with consistent outperformance over
fifteen years or more.
3.
Some portfolio screens are derived from statistical work
finding consistent patterns in large numbers of stock histories. Sometimes the
null hypothesis is derived from the findings of behavioral finance and sometimes
the work is exploratory and without a specific hypothesis.
Returns by Goal
A unique benchmark is relevant for each goal.
For market comparisons, the Russell equal-weight is used rather than the Russell
3000 cap weighted index because positions are generally purchased equal weight
within each clients’ accounts rather than a tilt towards large cap stocks. The
cap weighted indexes have been disproportionately influenced by the large social
media and tech (FANG) stocks benefiting from network effects.
Allocations and returns by goal
are given in the quarterly Performance Summary.
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