My one complaint about MFI thus far is the volatility (ok, my other complaint is lagging the benchmark). It is early days, so either criticism may change. I did review the 9 portfolios of stocks that I have tracked to see what I could see.
Not surprisingly, volatility (at the individual stock level) is largely a function of market cap. I took the 450 stock years that I have and grouped them into groups of 45 based on smallest to largest market cap at the time of purchase.
I'll try and publish the exact numbers tomorrow, but suffice it to say there was a direct correlation with smaller caps having the higher standard deviations about the returns. There was no correlation of results by market cap. This kind of makes sense. JG tells us if a stock is on the list it is up to us which to buy. He does not say that small stocks will do better than large stocks or vica-versa. But we do know that larger stocks are generally more stable. So therefore it follows that if you want to minimize volatility (seems like a good strategy in today's turbulent market) that if you print a top 25 list you might want to lean towards the larger cap choices.
Not as exciting perhaps, but I am growing weary of excitement. Thoughts?
AEO announced same store sales for back-to-school up 9% from last year (American Eagle same-store sales rise 9 percent ). I felt that was very strong, especially since they were up 16% last year, so it wasn't a slam dunk comp. Another interesting article on AEO in the WSJ. If you're not a subscriber it essentially commented on insider buying of AEO of late. I think AEO is ready to rumble.
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3 comments:
i also noticed the recent aeo insider buying. it played a major role in my decision to buy them in my most recent round of picks!
If you have the discipline to ignore the volatility and stick to 1-year holding period, the volatility shouldn't really matter. In fact, if you are willing to hold for more than one year, the volatility should present an opportunity to sell on a future spike, especially if the year anniversary happens to fall on a dip.
KJ, I am saying for stocks that have been held for a year the small stocks are showing much greater volatility. My comments and analysis had nothing to do with recent slide.
MG
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