On 6/10, Robert Sheard's daily column on Motley Fool discussed the
idea of selling short the lowest relative strength VL stocks with
timeliness rank 5. I have constructed a portfolio based on this idea,
and wanted to share initial results (first two months).
I sold short $10,000 of each stock at the closing price on 6/10
(except for one stock which closed at the daily high, that stock I
sold short at the day low - in real life you aren't going to be able
to sell short at the day high, since you are normally selling at the
bid). I eliminated 4 stocks because they closed on 6/10 below $5
(BOST, AMI, GOU, and TTX), and one stock because it is a foreign
stock traded in the pink sheets and can't be sold short
(COTTF).
I also made a portfolio of an equivalent amount of SPYders, purchased
on 6/10 at the close. In principle, you could move $150,000 to an
investment account, purchase $150,000 of SPYders and then sell short
the 15 VL stocks. The real return on this strategy is the gain from
the SPYders plus the gain (or minus the loss) from the short sales.
Here are the results so far (through 8/7 at the close)
Security Shares Price Basis G/L CurrValue
SPY for VL 5 RS
Spyders 1345.291 109.125 $150,000 -$3,195 $146,805
TOTAL SPY for VL 5 RS $150,000 -$3,195 $146,805
VL 5 reverse RS
Apogee -714.286 13 3/8 -$10,000 $446 -$9,554
Arrow Electronics -411.311 20 1/4 -$10,000 $1,671 -$8,329
Berry Petroleum -704.846 10 5/8 -$10,000 $2,511 -$7,489
Callaway Golf -547.945 11 15/16 -$10,000 $3,459 -$6,541
Cummins Engine -188.235 52 1/8 -$10,000 $188 -$9,812
Inco -720.721 10 11/16 -$10,000 $2,297 -$7,703
K2 -528.053 17 15/16 -$10,000 $528 -$9,472
National Semi -661.157 14 3/8 -$10,000 $496 -$9,504
OEA -577.617 12 7/16 -$10,000 $2,816 -$7,184
Phosphate Resource -1758. 8 -$10,000 -$4,066 -$14,066
Spacelabs Medical -610.687 17 11/16 -$10,000 -$802 -$10,802
Sunbeam -526.316 6 3/4 -$10,000 $6,447 -$3,553
Toro -296.846 25 11/16 -$10,000 $2,375 -$7,625
Walbro -1081.08 9 7/8 -$10,000 -$676 -$10,676
Wallace Computer Serv -411.311 18 7/8 -$10,000 $2,237 -$7,764
TOTAL VL 5 reverse RS -$150,000 $19,928 -$130,072
Percent change: One month Two months
VL reverse RS (short sales) +3.65% +13.3%
SPYders +4.60% - 2.1%
Total long/short +9.25% +11.2%
Russell 2000 +2.80% - 7.1%
In other words, VL Reverse RS portfolio underperformed the Russ2000
by 6.45% in first month, and outperformed the Russ2000 by 0.25% in
the second month, for a total underperformance of 6.2% over two
months. As a hedge, the reverse RS portfolio lost 3.6% in price
(gained if you were short) on Tuesday and Wednesday last week, vs. a
3.7% loss for the Russell 2000. Over the period from 7/16 (a near-
term high in Russell 2000) to 8/5 (the recent low), the reverse RS
portfolio lost 11.1% in price while the Russell 2000 lost 14.0%.
Note with respect to previous posts: a portfolio begun on 6/10 using
stocks with lowest rank in Zacks and Value line that had div yields
below 3%, would have outperformed the above portfolio, gaining 19.7%
for the first two months. It did not contain either AMP or BTL due to
the dividend yield restriction (which I relaxed later, with
unfortunate results :-). However the bulk of the difference is due to
one stock (Phosphate Resources in the VL 5 low RS portfolio) - so I'm
not sure it makes a lot of difference. |
