Messages: What Members Are Asking On-Line

Captools Replacement

CI Editor Responds: We received dozens of E-mails and phone calls from readers who use Captools for Windows—a CI top pick among portfolio management programs for many years—after the company announced it was dropping support for individual investors.

This issue of CI has our biennial comparison of portfolio management software. In addition, Cara Scatizzi contacted the companies highlighted in the comparison to see if their programs handle Captools data. The sidebar on page 10 outlines the programs that offer importing of Captools data and the steps to follow to do so.

AAII Model Shadow Stock Portfolio

CI Editor Responds: The AAII Model Shadow Stock portfolio was created and is administered by AAII’s Chairman, Dr. James Cloonan. He makes buy and sell decisions on a quarterly basis to correspond with the quarterly earnings announcement schedule of most companies (usually in late February, May, August, and November).

In addition, at the Shadow Stock Portfolio area of AAII.com (www.aaii.com/aaiiportfolios/stockportfolio), we also provide a list of companies that pass the Shadow Stock screen and update it monthly. Since this list of passing companies is updated monthly but the Model Shadow Stock portfolio is only updated quarterly, there are companies that appear on the passing companies list that will never end up in the Model Shadow Stock portfolio. Ultimately, it depends on when Dr. Cloonan runs the Shadow Stock screen when making his quarterly buy and sell decisions. His timing may not correspond with when the passing companies list is generated for the Web site.

CAN SLIM Methodology

CI Editor Responds: The CAN SLIM approach is one of the stock screen methodologies we track at AAII.com (www.aaii.com/stockscreens). We actually track two CAN SLIM approaches—one based on the second edition of William O’Neil’s book “How to Make Money in Stocks” and one based on the third edition. For the period from January 1997 through the end of June 2007, the “second edition” screen generated a hypothetical return of 1,380%.

Many firms report hypothetical returns for portfolios following their investment approach. This is especially true of methodologies that are quantitative in nature, meaning that investment decisions are based solely on an “algorithm” such as a stock screen with no additional “subjective” influences. This is a widely followed practice in the industry and is certainly not underhanded or misleading.

However, when looking into a company offering proprietary investment programs, it is always a good idea to see if any performance data they offer is based on hypothetical performance or whether it is based on “real money”—where they have actually invested in the market following their approach.

If the performance is hypothetical, it is a good idea to learn about the underlying assumptions the company uses to calculate the performance. These assumptions may have a significant impact on performance and may prevent you from earning the same returns. Factors that can affect returns include timing of trades, commissions, bid-ask spreads, and periodic rebalancing.

If a company is unwilling to offer the specifics of how they go about calculating their hypothetical returns, personally, I would hesitate to invest with them.