Paper challenge update

[dapperdobbs]

A year ago discussion about mutual funds, risk and diversification, v.
stock picking, prompted me to slap together 10 stocks (for the benefit
of those from Missouri). There was also discussion about the end of
the world. It has not quite been 365 days, but I added up some numbers
today for the trailing earnings (about four hours, including reading
about the businesses). Next year looks to be better than this year,
but managements are marginally cautious, for the most part.

Most importantly, the earnings of the portfolio dropped from $8,838 to
$6,938. Those are roughly comparable after GAAP and non-GAAP
adjustments, continuing ops, mergers and acquisitions, share
repurchases, and so on. The PE has increased from 11 to 21. Of the
five dividend paying stocks, four increased, one lowered. Total payout
$1,747.

http://www.stockalicious.com/portfolio-holdings/4710
http://www.stockalicious.com/portfolio-holdings/4745

Comparative performance was less than I actually expected, but the
market has risen more than I expected, Seven stocks outperformed the
market, three under-performed. I should'a ....

[Tad Borek]

dapperdobbs wrote:
> http://www.stockalicious.com/portfolio-holdings/4710
> http://www.stockalicious.com/portfolio-holdings/4745
>
> Comparative performance was less than I actually expected, but the
> market has risen more than I expected, Seven stocks outperformed the
> market, three under-performed. I should'a ....

Less than expected! If this were a mutual fund you'd be on the cover of
Barron's. After almost a year the 10-stock portfolio has a pile more
money than "the monkey." It depends on how you define the returns and
the effect of dividends but it looks to be something on the order of
15-20% more than the market based on those links. So if you worked for
____ mutual funds you could ditch it all in spiders, and ride that
outperformance for the next 5 years while doing the talking-head circuit.

BUT

It looks like it was all about Ingersoll-Rand. It wasn't that the dart
hit 10 winners, it's that one dart hit one big winner. Throw that one
out and here's what I get:

Site says (both, no-divs, correct?)
Monkey: 32.47% return
Darts: 50.77% return - Super!

Darts minus best pick: 35% average return for 9 stocks, no divs
Darts minus best & worst pick: 40% average return for 8 stocks, no divs

It's a nice micro example of "the mutual fund manager selection
problem." Is it that you have a method of stock-picking that is going to
find an IR at least 10% of the time? Or was that Just Dumb Luck?

And what's the next move...?

-Tad

PS I love that the "dartboard portfolio" lives on MIFP, the WSJ having
canned the feature. I'm curious how this will look 3 years from now, the
WSJ only ran it in 6-month blocks

[Elle]

dapperdobbs <George...@hotmail.com> wrote:
> Most importantly, the earnings of the portfolio dropped from $8,838 to
> $6,938. Those are roughly comparable after GAAP and non-GAAP
> adjustments, continuing ops, mergers and acquisitions, share
> repurchases, and so on. The PE has increased from 11 to 21.

Thanks for including the P/E. It is the part I think particularly
noteworthy here. I keep envisioning, as a layperson, something like,
"Well, earnings are down, so companies will tend to reduce payments to
their employees (one way or another), so the employees have less to
spend, so earnings will keep declining... " I can appreciate, sort of,
some of the government efforts to shore up the economy. But I do not
know if it is just holding the proverbial thumb on a hole in a poorly
designed dike. Plus I do not like the rising government debt.
Preventing more government debt was given much more attention in the
1930s.

The sky is not falling for me (though I envision several more years of
reduced portfolio dividends and interest). But I continue to be
concerned it may very well for the masses, like the Great Depression.

I wish more focus would be on Green Etc. Jobs, with the government
investing in re-building infrastructure and at the same time, giving
people jobs.

[dapperdobbs]

No, no, Tad. Ten stocks are ten stocks. You "Fundies" are just used to
throwing perfectly good money away! :-) Like paying ordinary income
tax rates on short-term distributions, guessing which stocks you might
actually be invested in, relying on probabilities, fudging
numbers ...:-)

Thanks for the compliments (but you confused me with the monkey and
the darts). Excluding IR five stocks appreciated above the market, BP
matched (if I recall correctly - 30% up). So in total, seven "winners"
for this time period. A more thorough presentation would compare the
earnings of the broad market to the earnings of the paper portfolio.
There is no next move. These are sound companies with serious
businesses. All were then and are now earning money. Hopefully they
will do a bit better over the next three years.

[dapperdobbs]

Elle -

Thanks for noticing the PE :-) as well as making sense of it. Part of
it is based on future prospects. The earnings are always the key. One
can get a sense of the economy (the design of the dike, as you put
it :-) from listening in on conference calls, perhaps much better than
listening to financial pundits. The ballooning debt is definitely
alarming. (I posted a reply to you earlier, but I guess it
disappeared.)

Best wishes,
Dapperdobbs.

[Elle]

On Nov 20, 2:23�pm, dapperdobbs <George...@hotmail.com> wrote:
> Thanks for noticing the PE :-) as well as making sense of it. Part of
> it is based on future prospects. The earnings are always the key. One
> can get a sense of the economy (the design of the dike, as you put
> it :-) from listening in on conference calls, perhaps much better than
> listening to financial pundits.

I know what you mean but confess for the dike I had more in mind how
our economy relies on banks and financing (e.g. Caterpillar and REIT
companies). These areas would seem to have been rather Ponzi'd, as we
all have much discussed here, or so is my layperson's impression. Add
on how federal and state governments are giving all this money away
($8k or so housing tax credits; extending unemployment benefits; and
so on) without getting anything substantive back, except ISTM a short-
term shoring up that I think can be mighty deceptive. I thank goodness
I am lucky enough to have skills to hopefully continue to weather this
okie-dokely. I even signed up for a new volunteer job yesterday.

> The ballooning debt is definitely
> alarming. (I posted a reply to you earlier, but I guess it
> disappeared.)

I posted a reply or two to a few of your and others' posts a month or
so ago. Off to the ether they went, I am afraid. I gave up for several
weeks. Skip W. explained recently that key, I guess spam-like, words
can result in some submissions being blocked. It is a good argument
for avoiding "colorful language" as the periodic MIFP moderator
announcement puts it.