The Model Shadow Stock Portfolio continues to do well in 2009—and if the portfolio continues to hold up, it will rival the year 2003 as our best year ever.
The Model Shadow Stock Portfolio is up 66.6% as of the end of August, compared to a positive 15.0% return for the S&P 500 (as measured by the Vanguard 500 Index fund).
Despite this performance, we still have not recouped all the losses from 2008. It will probably be awhile before the Model Shadow Stock Portfolio and the general market completely recover.
The positive movement of the stock market this year has already mystified many pundits. Probably the most positive indicator about the rest of 2009 is that so many analysts say the market can’t possibly go higher.
Qualifiers Still Above Average
The number of qualifying stocks in our initial screen dropped to 15 (three of which we already owned), which is still above the long-term average. Over the past year, the qualifiers have gone from 92 to 87 to 26 to 15.
In January 2010, I will have enough data to examine if the number of qualifying stocks correlates with the direction of the overall market or a segment of it.
Portfolio Changes
The Transaction History link highlights the portfolio activity at the beginning of September. We sold two stocks because they violated probation:
We also purchased two new stocks at the beginning of September:
We bought Jackson Hewitt because it qualified before they announced their earnings for the first quarter. These quarterly earnings were bound to be negative because earnings for tax service businesses tend to be negative for two quarters and positive for two. Therefore, Jackson Hewitt will not qualify by the time you read this. However, you can ignore the latest quarter earnings rule in this case if you wish to purchase the stock.
Stay the Course
It is very difficult to get a handle on the economy, much less the stock market.
The signs of recovery we are seeing may have been paid for from long-term growth. The impact of all the stimulus efforts on the economy will likely continue for another year or more, but if the market believes the intermediate term will be damaged by short-term stimuli, it may not react to favorable economic developments as strongly as hoped.
In the longer term, the case for inflation a few years out is fairly strong, and I believe the Federal Reserve will do whatever it feels necessary to reduce unemployment. However, the stock market can behave very well during inflationary periods, although more in nominal terms than real (inflation-adjusted) terms.
All in all, I can think of no compelling reason to deviate from your normal asset allocation in either direction.
The year 2009 will be behind us when the next Model Shadow Stock Portfolio column appears in the January 2010 AAII Journal, but you can track the portfolio at the Shadow Stock Portfolio area here each month.
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