AAII Resources
- AAII Model Shadow Stock Portfolio
- AAII Stock Screens
- Stock Investor Pro
- AAII Local Chapters
- Related Articles from AAII
AAII MODEL SHADOW STOCK PORTFOLIO
The Model Shadow Stock Portfolio provides guidance for investing in the micro-cap value sector of the market. The portfolio was initially conceived to show the membership of AAII how to capitalize on the most promising academic research to manage a stock portfolio without having to commit a great deal of time and effort to day-to-day monitoring. In fact, AAII manages this real-money stock portfolio (it is not a hypothetical portfolio) by simply reviewing holdings on a quarterly basis. The actual return of the Model Shadow Stock Portfolio over various time periods can be seen at www.aaii.com/model-portfolios.
The Model Shadow Stock Portfolio reflects the following beliefs:
- The best stocks for individual investors are not the same stocks that are best for institutions.
- Over the long run, research indicates that value stocks outpace the market, as do small (and micro-cap) stocks.
- Excessive trading of small-cap stocks hurts your bottom line; you can achieve solid returns by simply adjusting your portfolio quarterly.
- Success comes more from concern for the overall portfolio than for individual stocks.
A Do-It-Yourself Model
To pick the right stocks for AAII’s Model Shadow Stock Portfolio, we focus primarily on portfolio formation and risk reduction. The stocks in the AAII Model Shadow Stock Portfolio may look volatile when evaluated separately. But when taken together as a portfolio, most of that individual stock volatility has been diversified away. The central point of the Model Shadow Stock Portfolio is that the risk of any individual stock is not important if your portfolio is well diversified. What is important is how the addition of that stock affects the risk of your overall portfolio. If you are not following the full portfolio but instead use the list of stocks as a tool to generate investment ideas, it is suggested that you adhere to the overall strategy by selecting and monitoring a portfolio that consists of at least 10 stocks. Choosing stocks in different sectors will provide added diversification and protect your portfolio from some sector volatility. Furthermore, be sure to consider fees when making your investments. While there is no recommended minimum, investments should be large enough so that fees are insignificant.
While the Model Shadow Stock Portfolio reduces long-term risk, it is still prudent to take into account your personal risk tolerance. Investors are rightly worried about the amount they invest in a micro-cap strategy. The worst time to sell a stock is at the bottom, so be sure not to put so much weight into your micro-cap portfolio that you cannot stomach the losses. Keep in mind that due to the nature of the Model Shadow Stock Portfolio, it will offer very little income in the form of dividends. As in all Level3 Investing approaches, higher returns are the most effective defense against real risk.
Two Ways to Build Your Own Shadow Stock Portfolio
Follow the guidance provided here and issued in the AAII Model Portfolios columns in the January, April, July and October AAII Journals—remember, this portfolio was designed to require only simple modifications on a quarterly basis when company fundamentals change.
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Utilize the resources offered at www.aaii.com/stockportfolio where monthly updates are provided on the “Passing Companies.” The Passing Companies list shows the companies that meet the criteria for the Shadow Stock screen on the “data as of” date. This list is not to be confused with the Actual Portfolio list, which shows the companies that AAII currently holds in the Model Shadow Stock Portfolio. This screen is run monthly, so please check the website for the most current list of stocks.
Ongoing Management of Your Stock Portfolio
AAII’s Model Shadow Stock Portfolio is not intended to be an advisory service in the usual sense of that term—it is not intended to be a list of individual stock recommendations. Instead, the model portfolio serves to show you how to use a value-oriented approach to select micro-cap stocks in an effort to build your own Shadow Stock Portfolio. Profitable micro-cap investing requires extra care. The portfolio construction and monitoring rules were developed over the years to minimize real-world costs and maximize profits.
The AAII Journal provides quarterly commentary on the Model Shadow Stock Portfolio (it has been running since 1993) and suggestions on how you can vary the approach to build a portfolio suitable for your own specific needs. The detailed rules for building and managing a Shadow Stock Portfolio, as well as a monthly list of stocks that meet the criteria for inclusion, can be found at www.aaii.com/stockportfolio.
Ongoing performance of AAII’s Model Shadow Stock Portfolio is tracked online, but keep in mind that a portfolio can be built by simply following the investment moves outlined in the AAII Model Shadow Stock Portfolio columns found quarterly in the AAII Journal.
Stock Portfolio Management Criteria
A quarterly review of the purchase, sale and management criteria is all that is needed to build your own Shadow Stock Portfolio. Simply review your holdings on a quarterly basis to see if any fundamental changes make them candidates for sale (see sell rules below). If you have new investment funds available or cash from sales, you can look at the list of Passing Companies (www.aaii.com/stockportfolio) to see if any companies meet your needs for inclusion in your Shadow Stock Portfolio.
Click here for the current Model Shadow Stock Portfolio purchase, sale and management criteria.
Getting Started: AAII Model Shadow Stock Portfolio
AAII communicates information about the Shadow Stock Portfolio to membership via both print and online methods. Ongoing print coverage is provided through James Cloonan’s AAII Model Portfolios column in the AAII Journal. Performance information and commentary are always posted and kept up-to-date at www.aaii.com/stockportfolio.
AAII STOCK SCREENS
AAII has been developing, testing and refining a wide range of screening strategies for nearly 20 years. Many of the screens follow the approaches of popular investment professionals, while others are tied to basic principles of investing. These approaches run the full spectrum, from those that are value-based to those that focus primarily on growth, while most fall somewhere in the middle.
Screens following the approach of an investment professional do not represent their actual stock picks. The rules of each screen are defined by our interpretations of their respective investment approaches. The results of the screening strategies, as well as the criteria for each screen, are programmed into the Stock Investor Pro program and are also posted in the Stock Screens area of AAII.com (free access for AAII members).
Each month over 60 separate screens are performed using AAII’s Stock Investor Pro and the current companies passing each individual screen are reported. Stock Investor Pro subscribers can run the screens themselves on a daily basis, while AAII members can access the screening results by going to the Stock Screens area of AAII.com (www.aaii.com/stock-screens). The results are posted to AAII.com on the 15th of each month (excluding holidays and weekends) using data from the previous month’s end. The AAII Stock Screens Update email will notify you when the strategies have been updated on AAII.com and provide a more in-depth look at a featured screen each month. AAII members can sign up for this complimentary newsletter at www.aaii.com/email/signup.
The performance of the stocks passing each screen is tracked on a monthly basis. The month-to-month closing price is used to calculate the return, with equal investments in each stock at the beginning of each month assumed. The impact of factors such as commissions, bid/ask spreads, cash dividends, time slippage (the time between the initial decision to buy a stock and the actual purchase) and taxes is not considered. This overstates the reported performance, but all approaches are subject to the same conditions and procedures. Higher turnover portfolios typically benefit more from these simplified rules.
Sell rules are the same as the buy rules: The hypothetical portfolios are completely reallocated using each subsequent month’s data. Thus, a stock is sold (no longer included in the portfolio) if it ceases to meet the initial criteria, and new stocks are added if they qualify.
Stocks that no longer qualify are dropped even if the strategist behind a particular approach suggests different sell rules versus buy rules. This may shorten the holding period and increase the turnover relative to what the strategist would suggest for an actual portfolio.
See the January AAII Journal each year for a review of the AAII Stock Screens performance, including best and worst screens of the past year and best and worst screens over the long term.
AAII Stock Screens: www.aaii.com/stock-screens
STOCK INVESTOR PRO
Stock Investor Pro is a Windows-based fundamental stock screening a research database that is offered by AAII as a subscription product. Timely data is combined with in-depth data (over 2,000 data fields per company) to help you keep abreast of the market.
Stock Investor Pro allows you to easily conduct company-specific research, build customized stock filters or quickly tap into the program’s more than 60 powerful stock screens. The program contains how-to articles, online tutorials and valuable data from S&P Global Market Intelligence. You can learn successful stock-picking methodologies and also see the winning companies that pass each screen.
Screening
More than 50 screens are preprogrammed into Stock Investor Pro that cover most of the approaches tracked as AAII Stock Screens. Many of the preprogrammed screens follow the approaches of popular investment professionals, while others are tied to basic principles of investing. These approaches run the full spectrum, from those that are value-based to those that focus primarily on growth, while most fall somewhere in the middle.
Preprogrammed screens can be run and the results saved as a portfolio for further review. Screen criteria can also be modified to your specifications and saved.
The program allows you to create and save your own screens, run crosstab reports, and combine screens. Several statistical summaries and reports can be generated.
Database
Data within Stock Investor Pro, which is updated daily, includes:
- Database of around 7,000 NYSE, Amex, NASDAQ, and OTC stocks
- Consensus earnings estimates
- Eight quarters and seven years of cash flow statements, income statements and balance sheets
- Relative price strength for 4, 13, 26 and 52 weeks
- Percentile rankings, ratios, multiples and growth rates
- Ten full years of monthly price data
- Over 2,000 data fields per company
How to Subscribe
To order, go to www.aaii.com/store/sipro or call AAII Member Services at 1-800-428-2244.
AAII LOCAL CHAPTERS
AAII local chapters are grassroots organizations led by volunteer AAII members. They allow AAII to extend its mission “person to person” to individual investors in their own communities by programming meetings that provide unbiased investment education in a social context. In over 40 locations around the country, AAII members gather to hear from some of the most renowned experts in the field of investing. Local chapter meetings also give AAII members the chance to interact with other members to discuss investment trends and share opinions.
For a list of chapters, go to www.aaii.com/chapters.
AAII members can sign up to receive meeting announcements from a nearby local chapter at www.aaii.com/chapter/signup.
RELATED ARTICLES
The following articles from the AAII archives were mentioned in Investing at Level3.
AAII Model Shadow Stock Portfolio:
AAII Model Portfolios Commentary, by James B Cloonan, AAII Journal.
AAII Sentiment Survey as Indicator:
“Analyzing the AAII Sentiment Survey Without Hindsight ,” by Charles Rotblut, CFA, AAII Journal, June 2014.
Advisory Services:
Investment Newsletters columns, by Mark Hulbert, AAII Journal.
Robo-Advisers section, Computerized Investing
“What Exactly Do Online Investment Advisory Services Offer?” by Jaclyn McClellan, AAII Journal, January 2015.
Asset Pricing Models:
“Is Outperforming the Market Alpha or Beta?” by Larry E. Swedroe and Andrew L. Berkin, AAII Journal, July 2015.
Anomalies:
“Momentum’s Role as a Driver of Stock Prices,” by Charles Rotblut, CFA, AAII Journal, May 2016.
Behavioral Finance:
“Driving Emotions From Your Investment Process: A 12-Step Program,” by C. Thomas Howard, AAII Journal, September 2014.
Higher-Return Strategies:
“Finding Value and Financial Strength Based on ‘What Works on Wall Street,’” by John Bajkowski, AAII Journal, March 2014.
“Investment Wisdom From Wall Street’s Legends,” by Frederik Vanhaverbeke, AAII Journal, November 2014.
“The Magic Formula Approach to Stockpicking,” by John Bajkowski, Computerized Investing, January 2006.
“Why a New Allocation Approach Is Needed,” an interview with James B. Cloonan, AAII Journal, June 2016.
Index Investing:
“Achieving Greater Long-Term Wealth Through Index Funds,” and interview with John C. Bogle by Charles Rotblut. AAII Journal, June 2014.
Options Strategies:
“Assembling a Covered Call Portfolio on Dividend-Paying Stocks,” by Ben Branch, AAII Journal, June 2014.
Retirement Strategies:
“A Pseudo-Life Annuity: Guaranteed Annual Income for 35 Years,” by Robert Muksian, AAII Journal, June 2012.
“The Sequence in Which Returns Occur Affects Your Wealth,” by Charles Rotblut, CFA, AAII Journal, May 2015.
Stock Screening:
“AAII Stock Screens 2015 Review: Small-Cap Wins During a Large-Cap Year,” by Wayne A. Thorp, CFA AAII Journal, January 2016.
“Best of the Web: Stock Screening” Computerized Investing, December 2015.
“Constructing Winning Stock Screens,” by John Bajkowski, AAII Journal, December 2012.
