Model Shadow Stock Portfolio Reaches an All-Time High

by James B. Cloonan

Model Shadow Stock Portfolio Reaches An All Time High Splash image

The run of strong performance in smaller-cap stocks that began in December 2011 has carried through January and February, and micro caps have led the way.

The Model Shadow Stock Portfolio is up 17.2% year to date compared to 9.0% for the S&P 500 as measured by the Vanguard 500 Index fund (VFINX). The model portfolio is now at an all-time high.

Other results and comparisons can be seen in Figure 1 and Table 3. We have added new columns to Table 3 to show the cumulative values of a $10,000 investment since inception of the Model Shadow Stock Portfolio in 1993. Notice the difference between the $185,923 present value of $10,000 invested 19+ years ago in the Model Shadow Stock Portfolio compared to $44,844 for VFINX and $56,358 for the Vanguard Small Cap Index fund (NAESX). What seems like a modest annual difference compounds very significantly over the years.

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James B. Cloonan is founder and chairman of AAII.


Juan t from Florida posted over 2 years ago:

Do you recommend stop sell orders to minimize losses? Thanks

Charles from Illinois posted over 2 years ago:

Juan - Because of the nature of these type of stocks, they are best suited to a buy-and-hold strategy, rather than trading strategy. The holdings are monitored and we do have sell rules for the portfolio, which you can review at -Charles Rotblut, AAII

Barry from Illinois posted over 2 years ago:

I am a new aaii member, and enjoy the newsletter. As a new member, I'm unfamiliar with aaii policies regarding the model portfolio. My question is can members buy the model portfolio, and if so, how? Thanks.

Scott from California posted over 2 years ago:

The answer to your question is a tough one...there is another page in the forum where a few members have been discussing how they've managed to put the portfolio together, but it's not very clear.

Essentially, YOU need buy all of the stocks that pass the screen and/or are in the portfolio. The problem is while you know WHICH stocks to buy to match the portfolio, you don't know in what amounts or at what price. You could simply buy equal amounts of every current holding - it says to start with equal amounts in the "rules" - but since you don't know how much the positions have run up, you won't really have the same portfolio.

The way I am approaching this is to watch each of the holdings and for each that still meets the "buy" criteria, I'm looking for a good entry point - a day when they've fallen more than 3% for example. I just bought SGA last week after reading the research and seeing that it dropped 10% in one day. If I'm going to buy, a 10% pull-back seems like a pretty good start. The problem is it will take me 3 years at this rate waiting for each stock to catch a pull-back. Most of these have run up substantially this year and if you just buy the portfolio right now, you might have a 30% loss by the end of a year. The buy timing is crucial - just spend 10 minutes on Morningstar adjusting the timeframes of some funds to see the difference.

When we find the answer to your question, we will be much happier! If you followed the rules closely, you could probably buy equal amounts of every stock in the current portfolio and do alright - of course, that violates the rules, since some of the current holdings don't meet the "buy" criteria...hence the dilemma. Good luck!


Charles from Illinois posted over 2 years ago:

Barry, you cannot directly invest in the portfolio. There is no mutual fund or ETF that mimics it. Rather you need to personally buy each stock to follow the portfolio. We suggest investing equal amounts in every stock if you want to track the portfolio. You can buy as few as 10 stocks from the portfolio if you prefer to start off with fewer holdings. See the user's guide for more information on how to follow the model portfolios: -Charles Rotblut, AAII

Gil from Louisiana posted over 2 years ago:


Getting in on a portfolio that was bought on a prior date, and getting in on a good price takes some planning.

I like the portfolio I bought on February 29, which is up by over 16%, but would not buy it today. Last week, on the other hand, after two deep drawback days, I would have jumped on them.

First of all, I had screened each of those stocks, and had studied how they behave well before I bought them. So, there was no question of the quality of those stocks.

The second thing, however, is to buy on an overall dip. Today and yesterday we were coming out of a dip, but last Friday we were down low in one. There will be more dips. And the time for you to buy (if you know the stocks are quality buys) is to try to catch the next low.

The best thing you could do to pick a good time -- until you become strongly experienced -- and if you use a discount brokerage (as most of us do when we've been at it for years and years) is find someone with experience that you trust, and get your bucket ready and tell you when it's likely a good time to place the bucket order.

After years of trading, a person gets a sort of a feel for the way the U. S. exchanges are, in a sense, inhaling and exhaling. You want to strike at the bottom of an exhale.

Having that feel, you just sort of know. But trying to teach that to a newbie, in less than a period of years, is pretty hopeless.

Another problem is that even experienced traders fly by the seat of their pants, and don't always make the right call. While we strike out now and then, wise trading deals in getting it right most of the time.

One good idea for a rookie investor is to join a stock investing club and ask for timing guidance. However, NEVER, let anyone else get into your actual account, or know your password. They do not have to know your details, or how much. They can provide you guidance on which stocks are good picks, and when is a good time to buy, without ever knowing how many shares you buy, or other details of your account.

Good luck. Hope some of this is helpful.

(I'm a twenty-year trading veteran, very cautious, and have a good record of earnings.
And my annual goal is 30% gain, although I've averaged only about 12%/yr over past decade.
Never get greedy or overly-trusting of those who would advise you. In AAII, you have come to about the best source of advice in the whole world.)

John from Florida posted over 2 years ago:

Gil, Good Advice.

Bruce from Illinois posted about 1 year ago:

I have only been an AAII member since Jan, 2012. I have taken a hybrid approach to buying into the portfolio. I have bought the newly purchased stocks this year. And to supplement these portfolio purchases, I have a purchased a couple of the stocks on the qualification list which have not been purchased as part of the portfolio. The challenge here is that I must monitor the sell rules for these stocks on my own. But this seemed more prudent than buying stocks that had been in the portfolio for a while and may soon be sold.
For my comfort level, this allows me to ease into the portfolio without also feeling under-invested.

Gary from Michigan posted about 1 year ago:

I am interested in putting about $100K into a portfolio of Shadow Stocks. In reading some of the comments it seems that you are recommending buying the full portfolio and probably base a full portfolio as being 30 stocks. I am believing that using 30 as target number of stocks buying the next 30 stocks recommended in the fixed dollar figure based on my target investment. You did not recommend picking up prior buys as the market has been rising decently. Is my thinking correct.

Roger from Colorado posted about 1 year ago:

So does the Shadow Stock theoretical purchase do any timing based on pull back in the month the purchase rules are met?
Looks like Scott and Gil definite fined tuned the purchase rules, which makes sense.

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