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A Performance Update on the Top 10 Stocks Chosen by Value Investors


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Jae Jun

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With so much drama and noise in the news, I had forgotten about a certain portfolio that I track.

A portfolio constructed of community voted stocks, which I call crowd investing.

At the end of the year, investors enter a short stock thesis which people can then vote up or down. The top 10 are then virtually purchased at the beginning of the year.

I have a hidden page that explains all this plus the performance. It’s hidden because I want to gather more data to decide whether to continue this or to scrap it.

Here it is anyways – the annual 10 best stocks.

YTD Performance of the 10 Best Stocks Chosen by Value Investors 2013

I track the performance of this yearly portfolio by using what I believe to be the best free stock portfolio tracking spreadsheet. It’s nothing fancy, but it has everything that 90% of investors need.

Here’s how the crowd investing best stocks are doing.

2013 YTD Total Return

This is a 100k portfolio and so far it’s under-performing the market with a return of 13.9%.

2013 Crowd Investing Portfolio

Best Stocks Performance Details

Thoughts on this Portfolio

This is a mixed bag of stocks and includes companies that I normally wouldn’t buy, but overall, it’s not a bad bunch. Sure it’s not as good as a simple index, but good nonetheless for long term holding.

However, looking at the performance of the holdings, there is a good chance that my original thesis for starting this idea was incorrect.

The original idea was that a small group of value investors will be able to pick stocks that do well. Much like an investment club. But instead of 10 stocks, the total number of holdings should be set to 20. An individual that focuses heavily on research is suited to 10 stocks, but for something like this where the stocks are purchased and rotated after a year, more “buffer” or protection is needed by expanding the portfolio holdings.

From the holdings, you also get a sense that the OSV community likes larger cap stocks despite all the small caps I write about.

I’ll try to mix in bigger cap stocks into my articles.

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11 responses to “A Performance Update on the Top 10 Stocks Chosen by Value Investors”

  1. Mickael says:

    Hi Jae,

    And does a value investor have any kind of insurance for situations like the risk that your portfolio could go down quite significantly with event like the approaching US debt ceiling deadline? ie, if they default we might have a really bad return despite of having good stocks in our portfolio, wouldn’t we?

  2. frankiethepunk says:

    Actually this is a very good way of investing in stocks.

    I am including a video that will absolutely blow you and your readers away: http://www.youtube.com/watch?v=iOucwX7Z1HU

    In fact, I have incorporated this technique into my stock picking analysis. While its very difficult for any single analyst to reliably pick winners, if you take the average of their opinions you can get a very good sense of where the stock is going and what its going to do. Needless to say, it doesn’t work all the time (nothing is ever 100%) but it does give as good an indicator as you are going to get. One caveat. Do your own thoroughly rigorous fundamental analysis and choose only the very best stocks. Coupled with the wisdom of the crowds you have a pretty reliable way of making money.

  3. frankiethepunk says:

    Mickael, there is no such thing as insurance in the markets. If you have a systemic crisis EVERYTHING goes down as people panic and dump stocks. You can hedge but the concept of insurance depends totally on the financial strength of the insurer. Technically, all those credit default swaps (insurance on bonds) were worthless during the 2008-2009 meltdown. Its only because the US government came to the rescue that the credit default swaps were worth anything.

    In the event of catastrophic failure, the only thing that can save the international economy is the system itself. We were all exceedingly lucky the last time. By a miracle we had Hank Paulson, Tim Geithner and Ben Bernanke at the helm. Who knows if we will be so lucky the next time.

    However, the good news for investors with strong stomachs and iron will’s in the pit of these bear markets there are literally hundreds of incredible companies selling for pennies on the dollar. You have to take the attitude that you might as well buy these bargains in the hopes that the economy will recover, because if the world’s economies don’t co-operate to get themselves out of the mess, there will be in chaos and anarchy anyway. Under these extreme conditions, there will be a total breakdown in law and order and most probably wars between nations as they use “beggar thy neighbor” policies to get their economies out of the mess we would all collectively find ourselves in. Of course, this nightmare scenario is the very worst that could happen and the whole international economic system would have to reconfigure itself which might take many decades or even hundreds of years with mass starvation and deprivation for the entire world.

    The best solution is to do what the leaders of the world did with the leadership of the United States. Co-operate with each other and dig ourselves collectively out of the situation. So far its taken 5 years, and with lunatic behavior of the far right in the United States it could take another 5 years. By that time China will take over as top dog and the United States will just be another large dysfunctional economy like the European Union.

  4. goog thoughts frankie. A lot of what you say is true.

    Mickael,
    In the event that the US debt ceiling doesn’t get settled, then anything can happen. No company will be safe. The only safe bet is to hold cash, but then again, timing the market is near impossible.

  5. great video and exactly what I had in mind. I started this after reading about the same jellybean experiment that was held in a uni class. Nobody got it correct, but the average was the closest.

  6. and that’s why I see that 10 stocks isn’t going to be enough. At least 20 to 30 stocks has to be added.
    Will need more participation at the end of this year.

  7. Mickael says:

    I see what you mean, I was mainly wondering if it wouldn’t be worth it to hedge somehow as you mentioned, at least when there’s a predictable risk for a period of time In that way you could be still invested but would not lose as much if the risk materializes…

    Asking because I’ve almost not seen any value investor talking about hedging as a technique to incorporate in their investing.

  8. frankiethepunk says:

    The same thoughts have occurred to me. For example, is it worthwhile hedging the risk of a market meltdown resulting from a failure to raise the debt limit?

    I came to the conclusion that it wasn’t. I’ve discovered predicting the future is practically impossible. Believe me I’ve tried! But the more I read, I’ve learned that others far more brilliant than I have come to the conclusion that predicting the markets, (timing them -in other words) is a total mugs game.

    That’s one of the reasons why I’ve come to appreciate that the value approach to investing is the only reliable way of making money in the market. With the value approach you don’t even try to predict the direction of the market; instead you are an disciplined opportunist waiting for the best bargain to come along. Trust me, even that is difficult since the need for action is an ever present itch that a disciplined investor must learn to manage.

    I guess the best opportunity for hedging comes when you own a stock, which is simply TOO OVERPRICED that you want to hold onto. (This also goes for substantially overpriced portfolios.)

    My gambling days are over. My objective these days is to hold onto the very best portfolio of companies I can own FOREVER. As Buffet would say. That truly is the very best way to build wealth over time.

    So, if say, I’ve bought a portfolio of fabulous companies that have appreciated hugely over time, and the market looks ridiculously over-priced, hedging would make sense under these circumstances. Not only to protect my gains, but also to avoid the necessity of paying huge capital gains on a liquidated portfolio.

    Don’t get me wrong. Trading is a heck of a lot of fun, but I try to keep my main objective in mind. To build long term wealth.

  9. Mickael says:

    That same scenario is what I was thinking about, you are holding overprice stocks in an overprice market with risks of things going bad. I’ll need to see how this hedging thing is done (not for gambling, but for protection of your portfolio) and simulate a few scenarios to see how much it costs and how much you might lose if things go wrong. Ie, if you’re paying just a small % per year to have your stocks protected and that would prevent a drop of 40 or 50% in price, it seems kind of a good idea to always have something (specially if value investors are thinking about holding forever). But, as said, I don’t really know how it works at the moment and how much it’d cost vs the benefit it provides.

  10. frankiethepunk says:

    Yes, there is a good discussion as Jae says on hedging in the forum. Its interesting that the consensus view is the same as my own. That I don’t hedge unless I really feel the portfolio is overvalued. Its just too difficult to figure out what the market is going to do. But if you feel like a “time out” to get your wits about you while the market gyrates and bobs about as a result of the debt ceiling debacle, probably the cheapest way of hedging the entire portfolio is to short S&P futures contracts. You can tailor your position to a pretty good approximation of the portfolio by using full contracts and S&P mini contracts. (Its been a while but if I recall rigthly you value the contract by multiplying $250 x the index value) For example one contract would hedge a portfolio size of $423,000 of ($250 X 1,692 = $423,000) Then you divide the contract size into your portfolio size to get the ratio. The S&P Mini contracts hedge a portfolio 1/5 the size. So, $50 x 1692= $84,600.

    The nice thing about futures is that the premium’s are much lower than puts and calls. Secondly, the margin requirements mean that you are not using up all your capital to hedge the portfolio. If you were to use a short S&P 500 ETF to hedge you would have to use up to 1/2 your capital to hedge your portfolio.

    Anyway, there are a whole bunch of issues that you need to look at because there a wide variety of pros and cons regarding each method of hedging. For example, do you want to hedge for a few months or a few years?

    In any event, my own personal opinion is that in this market its not really necessary to hedge, so don’t jump into a hedging strategy unless you really understand it.

    The reason I think that this market is safe is ironically because the prospects of a debt default are so dangerous its literally as dangerous as “nuclear option.”

    Its true that there are a few hillbilly Politicians from Arkinsaw who have no problem defaulting on the US debt, but the majority of Republican’s are just rational enough not to pull the trigger of a loaded gun pointed at their heads. It just doesn’t make sense. They might hate Obama and Obama-care, but are they willing to give up their lives for it?

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