Aggressive is an equal-weighted portfolio derived from two different quantitative stock screens, based on companies that trade on U.S. exchanges. Each screen produces an exceptional trading plan by itself, but when the two are combined, the volatility of returns is reduced without much degradation of total returns. This is because their backtested, detrended equity curves have relatively low correlation.
Information is as of the close on April 11, 2008.
Model Allocation
Based on beginning with a $100,000 portfolio at inception, these are the current weights and holdings. During the last update, I switched the initial target from 5% buy weights in each position, or 10 positions from each screen, to 10% buy weights per position, or 5 positions from each screen. See my previous post on this system. Order is by screen name and weights are rounded to the tenth of a percent.
Screen One
Qualifiers for this screen are sorted by Price/Sales ratio as of the last post, from lowest to highest.
Chiquita Brands New (CQB) - 8.8%
Owens and Minor Inc (OMI) - 9.1%
Tecumseh Products Company (TECUA) - 12.1%
Olympic Steel, Inc. (ZEUS) - 10.0%
Bancolombia Sa (CIB) - 10.0%
Screen Two
Qualifiers for this screen are sorted by recent speculative interest as of the last post, from highest to lowest.
Cimarex Energy Co (XEC) - 10.1%
Plains Expl&Prod (PXP) - 11.0%
Stone Energy Cp (SGY) - 10.2%
Swift Ergy Hldg Co. (SFY) - 9.9%
Seacor Holdings Inc (CKH) - 8.3%
About 0.6% cash was being held, as of the last update.
Returns
Based on beginning with a $100,000 portfolio at inception.
Equity: $96,768.24
Gain, Past 4 Weeks: 5.87%
Gain, Year to Date: -4.01%
Gain, Since Inception at 11/26/20082007: -3.23%
No stocks in the Aggressive portfolio went ex-dividend in the past four weeks.
Changes To Model Allocation and System Weights
Aggressive is an equal-weighted portfolio derived from two different quantitative stock screens, based on companies that trade on U.S. exchanges. In the past, I had been using 10 positions from each system; in keeping with the title of this post, however, I will now be using only the 5 highest-ranked positions from each system. This should make the system generate slightly higher returns, albeit at a higher volatility, and it should also reduce the transaction expenses going forward. The new model allocation is a 10% holding of each of the following stocks.
Screen One
Qualifiers for this screen are sorted by Price/Sales ratio, from lowest to highest.
Tecumseh Products Co (TECUA)
Olympic Steel, Inc. (ZEUS)
Quaker Chem Cp (KWR)
Koppers Holdings Inc (KOP)
Fairfax Finl Hld Sub (FFH)
Screen Two
Qualifiers for this screen are sorted by recent speculative interest, from highest to lowest.
Gencor Industries In (GENC)
Compton Petroleum Co (CMZ)
Fairfax Finl Hld Sub (FFH)
American Physicians (AMPH)
Patterson-Uti Energy (PTEN)
If this system were to be initiated today, the target allocation would be a buy for 10% weight holdings of each stock listed. Since Fairfax Finl Hld (FFH) is included on both screens, an uncommon event, it will be held at double weight, or a 20% target, as long as both screens rate the stock a “buy.”
Tracking
Shares of CIB, CKH, CQB, OMI, PXP, SFY, SGY, and XEC will be sold Monday morning, market at open. This will generate cash equivalent to about 77.9% of the portfolio. New positions in AMPH, CMZ, GENC, KOP, KWR and PTEN will be bought at 9.7% weights, and a double allocation of FFH will be bought, representing 19.5% weight.
If you’d like to become of member of The Rempel Report, you can register here. At The Rempel Report, I track model portfolios for four different mechanical trading systems, as well as my personal portfolio, and disclose all results (good and bad) at regular intervals. Members receive email notification of new posts and can contribute to the site through comments. Registration is still free!
3 Comments
Hi Bill, Can you recommend any reading on the measurement and usage of speculative interest in individual equities?
Josh, Screen 2 is using a volume change metric, recent vs. longer-term volume, as the sort order. There are at least a couple of other ways to describe speculative interest, including options metrics like the stock’s Put/Call ratio, trading activity in the options on the stock (specifically increases in volume on one side or the other, put or call), and short interest (my favorite being “days to cover”).
If you go here http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators look for the Percentage Volume Oscillator, it’s a decent article. http://www.schaeffersresearch.com has good information on the stock’s Put/Call, I believe Options Monster would have information to read about changes in volume on the options. Investopedia has some links on short ratio, and I believe CXO Advisory did an analysis of research on changes in the short ratio.
My interpretation of the change in volume for a stock is that it adds to the significance of whatever move the stock is making; in this case, the stocks have fundamental support and are near their 52-week highs, so more often than not it’s a clue of increased price.
My interpretation of the change in volume for the stock’s options is that “smart money” (usually insiders) are betting on news. Ditto for changes in the short ratio.
My interpretation of a high put/call or high short ratio (provided it’s not increasing) is generally contrarian.
I use these as support for ideas and don’t run with them alone.
Hope that helps!
Corrected typo on inception date.