Top 10 portfolio performance?

[2Black]

here the chart & compared to spy.
top 10 market cap, 10% each, rebalance 1x year on first trading day.
a lot the same...

[OldShooter]

Quote:

Originally Posted by 2Black here the chart & compared to spy. top 10 market cap, 10% each, rebalance 1x year on first trading day. a lot the same...

I did glance at your spreadsheet and I did not see any references to dividends. To be useful, this type of comparison must be done on a total return basis. Dividends paid by the stocks and by SPy are part of total return; it's not just the year-beginning and year-ending sticker prices.

[Running_Man]

Quote:

Originally Posted by ERD50 But it has does not appear to have anything to do with passive/active investing in the past 30 years. If you have a point to make about passive/active investing in the past 30 years, please make it. You accused us of being closed minded, but we ask questions to learn more about this system, and you just divert the topic to some historical trivia about the S&P index in 1926, or 1957, or 1977, etc. My Grampa told me he got a nice lunch and a beer for a nickel back in those days. Interesting, but it doesn't help me make a lunch decision today. So what about this system for someone investing in 2019? -ERD50

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.

[ERD50]

Quote:

Originally Posted by Running_Man ... 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.

Well the question was posed because you brought it up. Then you were asked about it, I think in an attempt to understand if it had any relevance.

So, once again...

" So what about this system for someone investing in 2019?"

Data, rules,etc?


-ERD50

[Running_Man]

Quote:

Originally Posted by ERD50 Well the question was posed because you brought it up. Then you were asked about it, I think in an attempt to understand if it had any relevance. So, once again... " So what about this system for someone investing in 2019?" Data, rules,etc? -ERD50

OK back to the original,
Since the most capitalized stocks can be tracked and were actually being purchased by investors all the way back to 1926, unlike S&P500 index investors, who could not and did not invest back to 1926, a review can be done of the actual performance of the 10 largest CAP stocks by margin. Personally I plan on excluding any of the top 10 who have a Value Line Safety rating of 3 or lower and a timeliness of 4 or lower at the start of the year. I will also exclude any that do not pay a dividend.

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.

[Running_Man]

Quote:

Originally Posted by ERD50 Well the question was posed because you brought it up. Then you were asked about it, I think in an attempt to understand if it had any relevance. So, once again... " So what about this system for someone investing in 2019?" Data, rules,etc? -ERD50

OK back to the original,
Since the most capitalized stocks can be tracked and were actually being purchased by investors all the way back to 1926, unlike S&P500 index investors, who could not and did not invest back to 1926, a review can be done of the actual performance of the 10 largest CAP stocks. Personally I plan on excluding any of the top 10 who have a Value Line Safety rating of 3 or lower and a timeliness of 4 or lower at the start of the year. I will also exclude any that do not pay a dividend. Rebalancing will be performed once per year on the last day of the year.

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.

[OldShooter]

For the OP: There are roughly 10,000 mutual funds chasing roughly 3,600 stocks in the US market. So if you assume that each mutual fund has several analysts each looking at several stocks, then you have maybe ten analysts looking at every single stock. Charles Ellis, in "Winning The Loser's Game" theorizes that the reason stock behavior is random is that all these analysts and all their computer power just cancels out.

The flip side of that coin is that if there actually were such a simple scheme that showed backtesting success, serious money would have noticed this and tried to take advantage of it. But if the crowd tries to work a scheme, it destroys the success of the scheme. The crowd activity raises the buy side costs and depresses the sell side proceeds, eventually negating whatever opportunity might have been signaled by the back testing. So we are back to the random walk.

[ERD50]

Quote:

Originally Posted by Running_Man 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.

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

[Running_Man]

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.

[ERD50]

Quote:

Originally Posted by Running_Man 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

Quote:

Originally Posted by ERD50 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 beforehand? Might save us all some time/effort. -ERD50

[ncbill]

Quote:

Originally Posted by Running_Man 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]

Quote:

Originally Posted by ERD50 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

Quote:

Originally Posted by Running_Man 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.

Quote:

Originally Posted by ERD50 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]

Quote:

Originally Posted by 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, ....

Thanks. So far so good.

Quote:

Originally Posted by Running_Man ..., 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.

Quote:

Originally Posted by Running_Man ... 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.

Quote:

Originally Posted by Running_Man ... 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]

Quote:

Originally Posted by ERD50 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]

Quote:

Originally Posted by ERD50;2254589 ... 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