VFINX
The very strong run up at the end of 2016 for micro-cap stocks reversed in early 2017 and the Model Shadow Stock Portfolio is down 2.2% year to date as of February 28, compared to a positive 5.9% for the S&P 500 index as represented by the Vanguard 500 Index fund VFINX.
There were no indicated sales of holdings at this time, and so no new positions could be taken.
Five stocks passed the purchase criteria, including the liquidity requirement. One of these was Chinese and two were already in the portfolio.
The promised update of financial reports by Global Power Equipment Group (GLPW) and their request for relisting have still not occurred as of this writing. If current promises are kept, updates for the years up to and through 2015 should be completed before you read this, and a firm date for 2016 results should be given.
Over the past 30 years, the Model Shadow Stock Portfolio has only had a handful of situations with financial statements where major revisions were necessary. Now, with the addition of Roadrunner Transportation Systems (RRTS), there are two at the same time. Roadrunner is revising financials from 2014 onward. There are problems with their expenses and the valuation of goodwill.
In both cases, the revisions will likely lead to reductions in their past earnings. There is no way of knowing whether the initial $5 fall in the price of RRTS stock is appropriate. No action will be taken with these two holdings in the portfolio until the financials are revised, unless the stock violates a sell rule.
This has been a very long bull market. Just as it began looking very tired last year, the election results gave it an additional boost. It appears to me that the boost was mainly due to the belief that a Republican Congress and a Republican president would institute changes in the financial environment that would be good for the economy and the corporations that make up the stock market.
To date there has been more talk than action, particularly on the part of Congress. Where are the changes and simplification in the tax laws, particularly the changes in corporate taxes that would make our corporations more competitive and stop them from moving overseas? Where are the actual reductions in unnecessary regulation that stifle small businesses? Where is the modernization of the Dodd-Frank law on financial reform?
So far we have lots of promises and plenty of good intentions. We all know where good intentions lead. If investors begin to believe that nothing of significance is going to actually happen, our bull market could come to a screeching halt as both institutional and individual investors withdraw.
I keep hoping. Maybe we will have some actual change in important areas by the time of the next article on the Model Shadow Stock Portfolio in three months. In the meantime, you can keep up with the portfolio here.
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