Success or Failure? Managing a Portfolio of Stocks
- Tim Morton, CFA
- Jul 16, 2024
- 2 min read
Nine months ago I designed the MIR20 strategy and invested in a portfolio of 20 stocks. Given the passage of time, what worked and what failed?
The MIR20 stock strategy has a defined set of stock selection metrics and risk-reducing rules as outlined in my post last fall. MIR20 - Significant Return Opportunities with Risk Controls
The rules were strict and discipline was maintained despite my wanting to overrule the risk controls (do you really want to sell a stock after it moves down 20%, surely it will recover...)
The results so far and a snapshot of the current portfolio:
The strategy's objective was to outperform its relevant benchmark (S&P 400 - Mid Cap Index, as reflected by the MDY ETF) by 20% per year, over a three-year time frame (i.e., the benchmark MDY advances 10% and MIR20 produces a 12% return). It's not an easy goal! Additionally, I want the strategy to experience a 20% reduction (versus the index) in loss of portfolio value during market selloffs.
As of July 16, 2024, the strategy has advanced 29.1% versus the benchmark return of 25.5% (the MIR20 strategy outperformed the benchmark by 14% over these nine months).
This return was achieved after hedging expenses. MIR20 has been purchasing portfolio S&P 500 put "insurance" over this time frame (MIR20 gross return 31.3% - 2.1% insurance expense = 29.1%). The cost of insurance has been relatively inexpensive, at a nine-month total cost of 2.1% (think of the MIR20 portfolio insurance as hurricane or flood insurance, it only begins to pay out significantly when we experience a 10% drop in the S&P 500 value).
There has not been a 10% correction in the major markets since establishing the strategy, so the goal of being 20% less volatile than the benchmark has not been ascertained. It will certainly be tested going forward.
Over the next few months, I will review the most important features of the strategy. What worked and what has disappointed... the Good, the Bad and the Ugly.
Some high-level thoughts to expand upon in the coming months.
Are the individual stock returns random?
Will the portfolio insurance activate as expected, when required?
Percentage winning versus losing trades and their respective returns. ...does this produce a superior return, relative to just owning an index?
Buying beaten-up stocks (Lululemon) versus stocks that are flying high (Crocs).... make a predictable difference?
Does the strategy Stop Loss rules protect capital?
Did extensive research on each potential purchase prove to be worthwhile?
The difficulty in finding undervalued stocks after a substantial rally (the situation I am encountering today).
For those with an interest, I will post ongoing MIR20 updates and analysis on Mortonir.com and invite you to periodically check the website for ongoing comments on MIR20. If you would like to receive a direct email on MIR20 comments please let me know.
regards, Tim
Tim Morton, CFA is a retired portfolio manager with 45 years of experience working with private clients. For the past two years, the editor of mortonir.com and a contributor to Barron's. My comments are not to be taken as investment recommendations. They are purely for discussion purposes. Please see your advisor for investment advice.
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