Shadow Stock Portfolio Makes the Case for Buy and Hold

Well, we almost made it. The Model Shadow Stock Portfolio just about reached its pre-recession high by the end of November.

The portfolio is up 33.9% year-to-date. This compares with 7.7% for the S&P 500, as measured by the Vanguard 500 Index Fund (VFINX).

As I write this the market is strengthening, and we may surpass our pre-recession and all-time high. This certainly makes a case for the “buy and hold” approach, which has been bad-mouthed a lot lately. Of course the major indexes have not recovered as yet, but they are dominated by a few dozen companies. It has always been my opinion that individual investors should not bother with the 100 largest companies.

I should point out that a view of Figure 1 will quickly show you that the portfolio lost more than half of its value during the Great Recession, so buy and hold takes some fortitude, particularly for those who had a large segment of their portfolio allocation in common stocks. Complete performance data is shown in Figure 1 and Table 2.

The current holdings are shown in Table 1. As shown in Figure 2, the number of stocks currently passing the original screen decreased slightly to 16. I am still not able to attach future market direction to this figure.

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