AAII Model Shadow Stock Portfolio Changes

Yesterday we announced changes to the Model Shadow Stock Portfolio following Jim Cloonan’s quarterly review. You can read about yesterday’s portfolio deletions and additions in detail by clicking here.

To summarize, yesterday’s changes to the Model Shadow Stock Portfolio were as follows:

Sells:

• Alamo Group Inc. (ALG) was sold for violating the portfolio’s value and size rules
   
• Global Power Equipment Group (GLPW) was sold for violating the portfolio’s earnings rule

Buys:

• The New Home Company (NWHM) was added at $11.70 per share
   
• Olympic Steel Inc. (ZEUS) was added at $20.09 per share

“Four-Year Rule” Portfolio Changes

Last month we announced that Jim Cloonan was making changes to the portfolio management rules of the Model Shadow Stock Portfolio. As of December 1, a new “four-year rule” was adopted for the Model Shadow Stock tracking portfolio. Moving forward, stocks that have been held for more than four years will be sold unless:

• They still currently qualify as a shadow stock,
   
• They are up 40% or more from their purchase price, or
   
• There is no qualifying stock to replace them.

If a stock has been held more than four years, it needs to be up at least 10% for each year it has been held to remain in the Model Shadow Stock Portfolio. Therefore, a stock held five years needs to be up at least 50%, etc.

The rationale for this rule change is that it will allow the addition of more highly qualified stocks, take more advantage of momentum and increase the portfolio’s return.

Based on this new four-year rule, the following stocks were sold from the Model Shadow Stock Portfolio on December 1:

Sells:

• Key Tronic Corp. (KTCC)
   
• Salem Media Group Inc. (SALM)
   
• Shoe Carnival, Inc. (SCVL)
   
• VOXX International Corp. (VOXX)

With the proceeds, the following stocks were added to the Model Shadow Stock Portfolio:

Buys:

• Aceto Corp. (ACET) was added at $10.29 per share; buy up to $13.20
   
• AutoWeb Inc. (AUTO) was added at $8.58 per share; buy up to $10.01
   
• Big 5 Sporting Goods Corp. (BGFV) was added at $7.03; buy up to $8.90

We will provide additional information in the December Model Portfolio Update, which will be emailed on December 15. (AAII.com will also be updated to reflect these changes on December 15.) Jim Cloonan will discuss the buys and sells in his column in the January 2018 issue of the AAII Journal.