Incredible Shrinking List

Every month I track the top 50 stocks over 100m for a year. I call these my monthly tracking portfolios. It has been a trying stretch for these portfolios as they now trail in aggregate the benchmark Russell 3000 by over 4 points. The past 9 months to close at their anniversary dates all lost to the benchmark and all 12 that are currently open (one closes tomorrow and trails by over 5 points) are also trailing. That is a string of 21 straight months if we were to close up shop today. Sobering.

I thought it might be almost interesting to look at the average stock market cap by tracking portfolio.

Row Labels	Average of Cap	Median of Cap
5/31/2006	1,531	649
6/30/2006	2,292	619
7/31/2006	1,577	610
8/31/2006	1,576	734
9/28/2006	1,400	642
10/27/2006	2,408	789
11/29/2006	4,225	947
12/28/2006	2,704	694
1/26/2007	3,181	687
2/27/2007	3,373	651
3/26/2007	3,918	760
4/27/2007	2,073	778
5/29/2007	3,259	771
7/3/2007	2,095	721
7/30/2007	1,858	618
8/30/2007	2,310	649
9/27/2007	1,973	650
11/2/2007	2,180	506
11/28/2007	1,629	485
12/28/2007	1,873	415
1/25/2008	1,236	341
2/26/2008	1,134	374
3/24/2008	956	380
4/25/2008	1,015	393
Grand Total	2,153	649

Pretty stunning statistics. Back in October/November of 2006, I would read this as suggesting there was more value in larger stocks with average market caps in excess of $3b and median market caps over $700m. Today it is an exact reversal with average caps running at just $1b (65% lower) and median market caps under $400m. Is this a buy signal for smaller cap stocks? These stocks are really out of favor right now.

Small caps will come back when the larger fish start buying them again… I suspect that’ll be the true buy signal. The problem is that it is getting very expensive to buy companies, even if they are cheap. I saw where Liberty Mutual is buying Safeco and their debt will be 11% annually… cheap money is a thing of history. I suspect that some of the buyers will be from Europe and Asia as the US firms are extra cheap to them with the weak dollar.

Quick notes on various stocks

AEO – had better than expected earnings today and jumped 8%. They still have a long way to go.

WNR – if you’d have had courage and bought them the day after their bad earnings report May 15^th, you’d be up 41%.

LCAV – cut their dividend from 72 cents to 24 cents (been there) and stock is down 50% for me.

SIMG – don’t touch that dial. I was tempted to sell after they went up 10 to 15%. They are now up 56% for me… not sure why.

PACR – I have owned this as an MFI stock since 2006, renewing it in 2007 and 2008. The first two years were poor, but it is up 38% for me in 2008.

JTX – had a terrible tax season. This is likely dead money for the rest of the year. Very disappointing.

WH – my only “individually calculated” MFI pick is up 35%.

IAR & CHCG – my biggest dogs continue to be big dogs. And that is not a good thing.

HURC – I don’t own them, but they have been slaughtered, down from $47.13 before earnings last week to $35.90 today (24% decline). Probably will be worth looking at once they hit bottom.