What do you think of my portfolio?

Originally published August 2010!!!

It is always fun to look at someone else’s portfolio of stocks.

Some people read the Form N-Q of their favorite mutual fund and try to figure out which stocks to buy.

Recently, a friend of mine sent me his top ten stock holdings. He told me he reads Zacks regularly and gets his investment ideas from them. I decided to put his list of ten stocks into a stock screener and see if any of them interest me.

Here are the tickers: AIXG, AOD, ARCC, DPZ, GFRE, GIII, LUK, SINA, TMTF, TPX, WRLD

When screening stocks, here is the criteria they must pass. Market Cap > $300 Mil. Price over $10. Optionable. Average Volume > 500K. Although I am not a mutual fund buying millions of shares at a time, I will only trade a stock that is liquid. If it is not optionable, then I have no way of hedging with options. I can not sell a covered call and I can not buy a put for downside protection. I feel that stocks with a small market cap, low volume and no options on them, are too easily manipulated and I prefer not to mess with them.

After the initial screen, we are left with AIXG, ARCC, DPZ, LUK, SINA & TPX.

Ticker Company Performance (Month) Performance (Quarter) Performance (Half Year)
TPX Tempur Pedic International Inc. -13.69% -18.89% -8.12%
AIXG Aixtron Aktiengesellschaft -17.34% -6.87% -16.06%
LUK Leucadia National Corp. -3.63% -3.19% -12.93%
SPY SPDR S&P 500 -3.11% -1.83% -4.04%
DPZ Domino’s Pizza, Inc. -0.62% -1.08% 0.94%
ARCC Ares Capital Corporation 7.67% 12.81% 16.52%
SINA Sina Corp. 1.57% 14.18% 14.18%

Without going into the valuations of the companies, let us take a quick look on their performance relative to the S&P 500. DPZ, ARCC, & SINA are the only ones that beat the market. Last time I checked, people invest in stocks because they want to earn a greater return than if they put the money into a mutual fund or a stock index fund. Right now, this basket of 6 stocks are on average under performing the overall market.

As a big proponent of following the trend, I would take this portfolio and sell everything except DPZ, ARCC & SINA.

Here are the three charts, what do they mean to you?

Domino’s Pizza (Ticker DPZ) – Last Trade $12.86

Domino’s chart looks like it had a nice run in the first half of the year and now it is trying to figure out where to go.

Ares Capital Corp (Ticker ARCC) – Last Trade $14.88

Ares looks like it is still in middle of climbing higher.

Sina Corp (Ticker SINA) – Last Trade $42.67

Not really sure what to make of this chart. Range bound? Trying to make a new high? You make the call!

In February of 2008, the performance on my 401K / IRA was down 8% for the year 2008. Having heard all my life that  the stock market returns 8% a year, I thought to myself something is wrong. I decided to liquidate all my holdings. Half of the money I left as cash and the other half I used to buy the mutual funds which had the highest return last quarter. One was precious metals and the other was energy. Both Gold & Oil where hitting all time record highs at that point but it didn’t bother me, I still bought.

When it came May of 2008, the entire 401K was now back to only negative half of one percent! Two weeks later, it was back down 1.5% and I said to myself, enough of this, I am going straight 100% cash. I decided, I would be happy with a certain loss of 1.5% on the year as oppose to the uncertainty of being down 8% again.

Fast forward to Dec of 2008, my 401K was still down only 1.5% on the year. The S&P 500 returned a negative 38% in 2008. I must say I was pretty happy with my performance. I did not expect the market to crash 38% that year. The reason I pulled my money out of the market was because I lost 8% in the first two months of the year.

The valuable lesson I learned from that experience is to cut my losses before they reach 10% and only buy winners. Winners are stocks that are making new highs.

Lately there is a great deal of talk about the market being technically broken. People are expecting a crash to come in October. Trying to get a feeling of where the market is headed I did a screen of stocks that are positive on the year and stocks that are negative on the year. No matter which group I looked at, Small Cap, Mid Cap or Large Caps, it was all pretty much the same, half are positive and half are negative on the year to date time frame.

As Edwin Lefèvre says in his book, Reminiscences of a Stock Operator , You are either in a bull market, or a bear market. When we can not decide if this a bull or bear market, the best thing to do is wait on the sidelines.

Originally published August 2010