The Model Shadow Stock Portfolio has recovered from the poor first-quarter performance and has a year-to-date return of 4.0%.
However, it still trails the 8.6% return of the S&P 500 index, as represented by the Vanguard 500 Index fund 
(VFINX).
The S&P 500 has been driven by the large tech stocks and that impact continues, despite concerns as of this writing.
During the quarterly portfolio review. L.S. Starrett Co. (SCX) and Travel Centers of America (TA) were sold because they violated earnings probation.
Ultra Clean Holdings Inc. (UCTT) went above a price-to-book-value ratio of 3.0. But with no qualifying stock to replace this stock, it was kept in the portfolio.
Only two stocks qualified for purchase at the end of May under the portfolio criteria: CPI Aerostructures Inc. (CVU), and Salem Media Group (SALM), which is already held. The complete Model Shadow Stock Portfolio Rules are explained here.
The proceeds from selling L.S. Starrett and Travel Centers of America were used to purchase CPI Aerostructures. Strictly speaking, this stock should only be purchased up to a price of $8.00. But with a shortage of qualifying stocks, it could be bought at up to $9.00, which would be a price-to-book ratio of about 1.14.
Global Power Equipment Group (GLPW) has still not completed all of its revisions of past earnings reports. The current estimate for completion is the end of June, at which time they will seek relisting.
Roadrunner Transportation (RRTS) has not completed earnings adjustments, but the company estimates a negative impact of $20 million to $25 million.
These two stocks continue to be held in the Model Shadow Stock Portfolio, pending definitive information.
I hear more and more investors saying that the market is too high. While they have favorite stocks or strategies, they are waiting for a major pullback. Some have been waiting for over a year and have missed a sizeable move up. Certainly we could have a pullback. But, absent some major international or political event, a significant pullback after we have had two fairly recently (2000 and 2008) seems unlikely. On the other hand, a major run up after such large pullbacks is not out of the question.
Investors who do not need their assets in the near term may want to consider the following view of risk. Downside portfolio risk of loss is limited and temporary. Upside portfolio risk of loss (being out of the market when it is rising) is infinite and permanent.
Currently, the stock market seems to be unaffected by the daily confusion in D.C. It is hoped that the next earnings season will be positive. We will know prior to the next article reviewing the Model Shadow Stock Portfolio in October. Please keep up with portfolio news at here.
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