Top 10 portfolio performance?

[ncbill]

Well if you don't want your Grampa - I had a Grandpa and a Grandma is a Grampa a passive version of Grandparents? Or is it just an index of Grandparents, anyway - to go on about how far a nickel went in the day, don't ask him how does he know what the value of a nickel was back then. The question specifically was asked of me about what I meant about fake index in 1926 and that I made up without any quoting the fact the stocks in the S&P500 were selected after the great depression.

"...like the time I caught the ferry over to Shelbyville. I needed a new heel for my shoe, so, I decided to go to Morganville, which is what they called Shelbyville in those days. So I tied an onion to my belt, which was the style at the time. Now, to take the ferry cost a nickel, and in those days, nickels had pictures of bumblebees on 'em. Give me five bees for a quarter, you'd say.

Now where were we? Oh yeah: the important thing was I had an onion on my belt, which was the style at the time. They didn't have white onions because of the war. The only thing you could get was those big yellow ones..."

 

[redduck]

Good to hear. Before you invest too much time in this, I think it would be helpful to outline exactly what data, time frames, and how you plan to put it together.

If the 'skeptics' here could review that first, you might get some input that would be helpful. I suspect there's a communication gap here between what we would want to see and what you think we want to see. Maybe not, but we'd need that info anyhow to understand whatever you put together, so why not take a 1st step of sharing the plan beforhand? Might save us all some time/effort.

-ERD50

I will think about starting a thread on it in the near future, I have already called Value Line about getting past Value Line reports, have to negotiate a bit on the price of that yet.

I'll look forward to that. But did you see my earlier post? It would still make sense to review your plan before putting any effort into it.

-ERD50

Still way too much miscommunication. Running_Man, I suggest that you have ERD50 (and any others) review your research design before you begin investing time, money and energy into this endeavor. You also might want to think (or re-think) why you want to undertake this project.

note: bold by the duck

 

[Running_Man]

Well the plan is pretty simple,

1) Start with getting the last 20 years of data on performance by top 10 in market cap in the S&P 500 and the percentage of market cap at the start of the year. Re-balance annually, ignore tax effects.

2) Get the Value Line index values for those stocks at 12/31/XX for the past 20 years to be able to add qualitative analysis on top.

3) Compare annual results for 20 years results for cap weighted top 10, top 10 average and top 10 qualitatively analyzed. Compare to straight through investment in S&P 500.

Base future investment on the results of the 20 years, and then begin back testing. The previous decades will be important as there was not the level of index investing in the decades prior to 1999 that there was after so that those decades will be absent the index effect and would I think have more variance to the average than the last 20 years, but we will see.

 

[redduck]

Running_Man, thanks for the response. I'm curious to learn if some others see this as a clean design or not.

 

[ERD50]

Well the plan is pretty simple,

1) Start with getting the last 20 years of data on performance by top 10 in market cap in the S&P 500 and the percentage of market cap at the start of the year. Re-balance annually, ....

Thanks. So far so good.

..., ignore tax effects. ...

Fine for tax deferred accounts, and I realize everyone's tax situation is different, but we might want to also do a calculation assuming 15% LTGC. That can be done after the fact, so it has no impact on the planning stage.

...
2) Get the Value Line index values for those stocks at 12/31/XX for the past 20 years to be able to add qualitative analysis on top.

3) Compare annual results for 20 years results for cap weighted top 10, top 10 average and top 10 qualitatively analyzed. Compare to straight through investment in S&P 500.
...

Not sure what/how quantitative analysis will be used? It should be defined upfront so we don't run into a data-mining operation.

... Base future investment on the results of the 20 years, and then begin back testing. The previous decades will be important as there was not the level of index investing in the decades prior to 1999 that there was after so that those decades will be absent the index effect and would I think have more variance to the average than the last 20 years, but we will see.

Not following your " then begin back testing" comment. Wasn't that already done in 1 & 2 above? Sure, we can start tracking results going forward if past results look promising, that would be interesting (and, the whole point of the exercise!).

It seems you are trying to determine if index investing has affected the market? I doubt that can be parsed from the data, and seems irrelevant anyhow. We can only invest in the world as it is today.

-ERD50

 

[Running_Man]

Thanks. So far so good.


Fine for tax deferred accounts, and I realize everyone's tax situation is different, but we might want to also do a calculation assuming 15% LTGC. That can be done after the fact, so it has no impact on the planning stage.



Not sure what/how quantitative analysis will be used? It should be defined upfront so we don't run into a data-mining operation.

My Basic Value Line Screening Criterea:
1) Must be rated in the top 25% of all Value Line stocks for Financial Strength and Safety – Stock should have a safety rating no lower than 2
2) Must pay a dividend with a reliable record of dividend growth
3) Price Stability must be in the top 65% of all companies
4) Earnings Predictability must be in the top 65% of all companies
5) Timeliness of 3 or higher with a strong preference to stocks rated 1 or 2.

Selling will occur if :
1) Value Line reduces the Financial Strength at all or if Safety falls below 2. A cut in Safety ranking is a strong reason to sell a stock in and of itself but is not automatic.
2) Timeliness rating falls to 4 or lower.
3) Dividend is cut or expected increase unexpectedly does not occur.

Not following your " then begin back testing" comment. Wasn't that already done in 1 & 2 above? Sure, we can start tracking results going forward if past results look promising, that would be interesting (and, the whole point of the exercise!).

It seems you are trying to determine if index investing has affected the market? I doubt that can be parsed from the data, and seems irrelevant anyhow. We can only invest in the world as it is today.

Opinions can differ over what is thought as important.

-ERD50

Project Illini!

 

[redduck]

It seems you are trying to determine if index investing has affected the market?
-ERD50

Running_Man, is that what you are trying to determine?

 

[Running_Man]

I am trying to determine if the top 10 capitalized stocks over perform the S&P500 as a whole. If they do I surmise my normal criterea of exclusion will make a set of very profitable large cap stocks that will perform well in my portfolio for the long term. Once I determine if this is true I would prefer to know if this is a relatively new performance or if this has been the case for a long time.

Apparently ERD50 and others are not surprised that a small number of the S&P500 could correlate so very highly with the whole of the index, but I was surprised. I suppose it is the difference in thought pattern where the typical index or passive investor would see only the small difference and the greater diversity and safety the index affords. I like to know what is effecting the stock price and if a stock can meet my long term objectives and have extremely high liquidity and better than average performance I want to own it.

It equally could also be share buybacks which are far more prevalent for the large cap stocks, in the past share buybacks were illegal so that is another possibility of causation in the market. If that is so then the individual shares that do not have share buyback programs might as a group under perform the individual stocks that do. Or they may, as I tend to think is more likely show that companies that spend more money on share buy backs actually under perform. But first things first...

 

[pb4uski]

RM, if you have a list of the top 10 stocks as of the beginning of each year, I think you could use Portfolio Visualizer to do a run for each year for top 10 cap weighted, top 10 equal weighted and S&P 500 (using Vanguard 500 Index Fund as a proxy for the S&P 500) and then use a spreadsheet to tally each year's annual return and then compute the 10 or 20 year return.

The nice thing about Portfolio Visualizer is that the returns will include dividends.

 

[Running_Man]

OK thanks, I will begin to be looking at that this weekend

 

[thefist]

Running_Man, why the requirement on dividend payers? I understand why dividends are desirable, but at present, that would exclude 5 of the top 10 companies in SPY. This seems contrary to the original proposition of taking the top 10 each year. Excluding this many companies from the final list changes things substantially. It seems more like a personal preference rather than a test of the proposed screen.

 

[Running_Man]

Running_Man, why the requirement on dividend payers? I understand why dividends are desirable, but at present, that would exclude 5 of the top 10 companies in SPY. This seems contrary to the original proposition of taking the top 10 each year. Excluding this many companies from the final list changes things substantially. It seems more like a personal preference rather than a test of the proposed screen.

I will still be testing the original proposed screen but I expect my personal screen will outperform the remainder, we will see if they make any difference.

 

[triangle]

Related to this discussion:
https://www.cnbc.com/2019/03/11/jus...for-25percent-of-the-bull-markets-return.html

Late last week I watched a segment from one cable business/financial show where the person pointed out that X% of 2019 gains had came from the top 4 stocks. I can't remember if X was 25%, 33%, 40%, or something else, but it was a big number.

 

[thefist]

I will still be testing the original proposed screen but I expect my personal screen will outperform the remainder, we will see if they make any difference.

This should be an interesting comparison. I’m thinking exclusion of non dividend payers would hurt performance some. First, there won’t be many excluded. Second, the ones excluded got there due to high growth. Maybe third, it’s a small list and removal of any candidate will hurt.

 

[ERD50]

Originally Posted by Running_Man View Post
OK back to the original ...
I am going to review the raw data of the 10 largest CAP stocks as is, layer my exclusions on top and see what the results are.

I will think about starting a thread on it in the near future, I have already called Value Line about getting past Value Line reports, have to negotiate a bit on the price of that yet.

OK thanks, I will begin to be looking at that this weekend

RM, any progress?

-ERD50