This year has yielded exciting results for sure. The power of the 2013 bull market has looked like a steamroller on occasion. The list of top-10 stocks that we follow, gleaned from a major financial newspaper’s watchlist of fifty stocks had a weekly compounded total return of 65% through the end of last week — so our results are not exactly a year as we go from Friday close to Friday close. The “year” for our reporting purposes began on December 29th 2012.
It’s probably worth recapping what our data sources are. As noted above, prices and returns are calculated Friday close to Friday close. The newspaper’s numbers come from the Saturday edition. The S&P, NASDAQ and Russell 2000 numbers are calculated weekly by a Quick Test in VectorVest. The VTI numbers used for risk adjustment in this post came from Yahoo! Finance via YLoader. Market movements and returns are calculated in a Google Drive spreadsheet which has proven to be accurate when I check it periodically. I accept the numbers as presented and offer no guarantees of accuracy. But, I strive to be cautious and careful and try to spot errant numbers.
There is no money management employed in these models. It is likely that the use of stops or other money management techniques could materially change the relative results obtained.
We used to derive part of the data for our “old” IntersectionX watchlist from the StockTwits50. When that list went for-pay this year I adopted an alternative methodology for the IntersectionX II watchlist. I have still not found a consistent replacement for the old Superpicks but believe I am getting close and will report in due course. Our new IntersectionX II watchlist went live on June 29th 2013. We calculated comparatives to other watchlists and indices from that date, which is a twenty-seven week period.
Please don’t take any of the results or comparisons as absolute, rather as idea generators or a starting point for your own research.
As you can see the newspaper handily spanked the broader market indices for the year and it is certainly a testament to their selection methodology. They did this with greater volatility though, as measured by standard deviation. In those last twenty-seven weeks though, the IntersectionX II watchlist actually did best. How it did this is interesting. Whether the characteristic identified continues in 2014 we will see.
In the twenty-seven week period the INXII was the better watchlist in only six weeks. The newspaper was ahead in fourteen weeks. In the remaining seven weeks, when the newspaper list was down the INX II was down much less. In fact, based on a scan of the numbers, the INX advantage came not from beating to the upside, but from not having the downside excursions:
Long story short, any of these watchlists will perform well. I suspect it will take a new Superpicks watchlist to consistently beat the newspaper over time, however the INX II does have less volatility, so, in a real world situation, depending entirely on your tolerance to volatility and what, if any money management techniques you use, it may be a good choice for you. The take home has to be though, that for the price of a weekly newspaper it was possible to generate tremendous returns in 2013.
And speaking of volatility (risk) tolerance, timing, as they say, is everything. On page 20 of the latest AAII Computerized Investing (Vol XXXIII #1) a risk adjusted return methodology using standard deviation to create a risk index using Vanguard’s total stock market ETF ticker VTI as a baseline is listed. I use, and am actually long VTI, it is an interesting and useful vehicle, so I duplicated the methodology on the watchlist and index results for the last twenty-seven weeks. This is the result, and it is not what I expected:
In this calculation the IntersectionX II is the clear winner, with the NASDAQ composite taking second place. The full newspaper watchlist beats out its Top-10 subset. Now, be careful. Remember this uses raw results with no money management (which could make big differences) and, volatility, or more especially, standard deviation is used as a proxy for risk. But, since it is my observation that many people are more sensitive to volatility than they let on, this is an interesting point to ponder. It will be educational to follow the data in 2014 and see if these characteristics continue, or if they were peculiar to Q3 and Q4 of 2013.