I sold PGI today. Yes it is a week shy of my anniversary, but it was in my IRA so taxes were not a consideration. Also, I am on vacation all of next week. I ended up making about 45% on the trade, making it my 2nd best sold MFI stock after UST. My purchases of THO and TGB are now totally official. DLX has a week to go. I will hold for the week as it is in my brokerage account and I am up about 30%.
It was a down day in the market today. My portfolio held up pretty well. AVCI was up another 45 cents. I think it is now up about 45% for me. It has gone up so quickly that I expect it to drop quickly as well. Maybe I'll be wrong. It was "dividend day" for me. I collected on MTEX, TGIS, FDG, FTO & PDS. Over $500. I feel rich!
Now for the study.
I now basically have 4 monthly tracking portfolios that have a year under their belt. Between them I have one year results for 167 companies. I did a mini study on their results.
1. The average annual return (including dividends) was 15%.
2. The standard deviation was 34%. That seems large to me, but I have nothing to benchmark against.
Here is a distribution of gains/losses by band:
| Lose 65% | 1 |
| Lose 55% | 3 |
| Lose 45% | 2 |
| Lose 35% | 7 |
| Lose 25% | 11 |
| Lose 15% | 10 |
| Lose 5% | 22 |
| Make 5% | 23 |
| Make 15% | 22 |
| Make 25% | 19 |
| Make 35% | 12 |
| Make 45% | 11 |
| Make 55% | 5 |
| Make 65% | 6 |
| Make 75% | 2 |
| Make 85% | 7 |
| Make 95% | 2 |
| Make 105% | 1 |
| Make over 110% | 1 |
So that means (for example) that 3 of the 167 stocks lost between 50% and 60%. And seven stocks went up 80 to 90%. Stocks can appear more than once if in separate months.
I then ran what is called a monte carlo simulation against the 167 stocks, to see the distribution of expected results for a portfolio. I ran the distribution against 3 different sized portfolios: 10, 20 and 30 stocks. The table below shows my findings:
| 10 Stocks | 20 Stocks | 30 Stocks | |
| Losing Money | 7% | 2% | 0% |
| Less than 10% | 31% | 24% | 18% |
| Less Than 15% | 50% | 51% | 51% |
| More than 15% | 50% | 49% | 49% |
| More than 20% | 32% | 24% | 20% |
| More than 25% | 18% | 9% | 5% |
| More than 30% | 8% | 2% | 1% |
This table shows the volatility based on size of portfolio. So if you had a 10 stock portfolio, you had a 31% chance of making under a 10% return. You also had an 18% chance of exceeding a 25% return. As you'd expect, the more stocks that you hold, the more the distribution clusters about the average of 15%. This is a big reason why I have pushed my portfolio actually a bit over 30 stocks. I don't want the volatility, but rather I'd be very happy with the average. The distributions seemed pretty "normal", meaning they are shaped like a bell curve. They were ever so slightly skewed to the left, meaning the most common result would be to do a little worse than the mean. I'll try to update in anothe 3 motnhs when I have another 150 or so stocks in the analysis.
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2 comments:
Excellent stuff, Marshall. I look forward to seeing updates on this in the future.
thanks for doing this study, marshall. the data set is much larger than my own preliminary study, and shows a much more broad, less skewed distribution. it's interesting that there's a small skew to doing worse than the mean. i interpret this (and please tell me if your interpretation is different) as meaning that the median is lower than the mean, and that a few extremely well-performing outliers act as a long tail on the distribution to increase the mean.
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