Shadow Stock Portfolio: About Even Despite High Volatility
by James B. Cloonan
The performance of the Model Shadow Stock Portfolio in 2009 did not replace that of 2003 as the best year ever, but it came close with a return of 72.3% versus 73.1% for 2003. Unfortunately, even this unusually high return did not recover all that was lost in 2008, as can be seen in Figure 1.
We are still 14% below the pre-2008 level. We have to live with the reality that when you go down by 50%, you have to go up 100% to get back to where you were. Long term, the portfolio still has excellent performance, as can be seen in Table 1. The S&P 500 (represented by the Vanguard 500 Index fund) was up 26.5% for 2009 and is about 22% below its pre-2008 level.
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Year-to-date (as of the end of February) the portfolio as well as the general market are about even, as can be seen in Figure 1 and Table 1, but there has been high volatility with a weak January and a strong February. The February strength is continuing into early March.
As shown in Figure 2, the number of stocks passing our initial screen dropped to 12 this quarter, which is down a bit. After a few more quarters, we will see if we can correlate the number of qualifying stocks with market behavior. Some of the qualifiers were already in the portfolio, and we made the choices here based primarily on lower price-to-book-value ratios.
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