Category Archives: Blog

Investment Reading List

Below is a short list of investment-related material I am reading this week:

From Alpha Architect:

The Amazing Unbeatable Poker Algorithm
Quantitative Momentum Research: Intermediate-Term Momentum

From Mebane Faber:

NY Resolution For You – Don’t Buy a Tesla
The Most (Not) Hated Bull Market The Importance Of 2014’s Least Popular ETF

A Simple Four Fund Global Financial Asset Portfolio – Pragmatic Capitalism

Dow 20,000: Is 2015 the Year? GestaltU

What Lost Decade? The Irrelevant Investor

There’s more to life than the S&P 500 – The Reformed Broker

Predicting the Future of the Liquid Alt Industry – A Wealth of Common Sense

Asset Class Returns vs. “The Average Investor” – The Big Picture

Graham Value Stock Portfolio January Update

In January 2012 I announced a new portfolio, a Benjamin Graham “inspired” value stock portfolio.  The Graham portfolio is an attempt to add a value strategy to Scott’s Investments, which is otherwise focused on momentum, trend, income and market timing strategies. The portfolio tracks returns for a portfolio of 15 stocks selected based on a variety of valuation metrics.

The criteria used to select the stocks are listed below.  The tool used to perform the screen and backtests are courtesy of  Portfolio123 (“P123″).

The actual screen factors are below:

  • Liquidity filter: No OTC Stocks
  • Market capitalization > $100 million
  • Eliminate companies classified in the Miscellaneous Financial Services Industry, most of which are investment companies and funds and not the kind of stocks this all-star tended to seek
  • Current ratio must be at least 1.5
  • Long-term debt must be no higher than 10% above working capital
  • EPS must be above breakeven in each of the last four quarters and in each of the last five annual periods
  • Trailing 12 month EPS most be above EPS in the latest annual period
  • EPS in the latest annual period must be above EPS in the prior year and five years ago
  • The company must have paid common dividends in the last 12 months

The ranking system used as a basis for selecting the top 15 based among those stocks that pass the Graham screen are below:

  • Valuation – 60% of total
  • Trailing 12 month P/E (15% of this category)
  • Price-to-Book (15% of this category)
  • Price-to-Tangible Book Value (35% of this category)
  • Operating P/E, defined as Market Capitalization divided by Business Income, which is Sales minus Cost of Goods sold minus Selling, General & Administrative Expense and omits unusual items (35% of this category)
  • Earnings – 40% of total
  • 5-year EPS Growth Rate (50% of this category)
  • EPS Stability, defined as the standard deviation of EPS over the past 16 quarters, lower being better (50% of this category)

Stocks are now sold when they drop below the 75th percentile ranking based on the ranking system above. Improvements in the screening and testing platform (via Portfolio123) allows a change in the sell/turnover rule from previous updates.   I originally intended to update the portfolio monthly; however, in the spirit of creating a lower turnover, value-driven portfolio it is now updated less frequently.

I began tracking this portfolio real-time on January 13th, 2012. As of January 16th, 2015 it is up over 36%. A real-world application of this portfolio could also utilize stop losses in order to prevent large drawdowns in single positions. However, for the purposes of tracking the portfolio results, all positions are bought and held until rebalancing.

Below is a 14+ year backtest results for this screen  using a quarterly rebalance, assume the next day’s opening price as the execution price, and .50% slippage to help account for bid/ask spreads. Backtests include the 75th percentile sell rule (stocks will only be sold when they drop below the 75th percentile ranking):

(test data courtesy of Portfolio123)



The stocks being sold 1/16/2015 are listed below:


Symbol Name Purchase Price Purchase Date Cost Basis Closing Value Unadjusted  Gain/Loss
UFPI Universal Forest Products Inc. 46.06 10/15/2014 $13,910.12 $15,417.10 10.83%
SWM Schweitzer-Mauduit Intl Inc 33.61 10/15/2012 $7,158.93 $8,530.65 19.16%
WMK Weis Markets Inc. 38.69 1/15/2013 $6,886.82 $8,567.14 24.40%

The current portfolio is listed below:

Symbol Name Purchase Price Purchase Date Unadjusted Gain/Loss
BGFV Big 5 Sporting Goods Corp 15.32 4/15/2014 -17.69%
BWC The Babcock & Wilcox Company 33.85 4/15/2014 -19.79%
HFC HollyFrontier Corp 45.9 4/15/2013 -32.81%
ALG Alamo Group 39.72 10/15/2014 18.03%
CLMS Calamos Asset Management Inc. 12.67 4/15/2014 1.97%
CSH Cash America International 47.35 4/15/2014 -54.89%
CTCM CTC Media, Inc 9.26 4/15/2014 -48.70%
AVT Avnet 41.69 1/16/2015 0.00%
JST Jinpan International 7.77 1/15/2014 -34.11%
FF FutureFuel 11.79 1/16/2015 0.00%
GPRE Green Plains 21.39 1/16/2015 0.00%
RCKY Rocky Brands 15.37 1/15/2014 -12.62%
SCVL Shoe Carnival Inc. 24.82 1/15/2014 -3.71%
DDS Dillard’s Inc. 91.08 4/15/2014 27.58%
KALU Kaiser Aluminum Corporation 73.01 4/15/2014 -3.63%

Dual Momentum Portfolio Update

Scott’s Investments provides a free “Dual ETF Momentum” spreadsheet which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum.

Antonacci has a new book out, Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk. If you want to see how he applies Dual Momentum to a portfolio strategy I encourage you to read the book.

My Dual ETF Momentum spreadsheet is available here and the objective is to track four pairs of ETFs and provide an “Invested” signal for the ETF in each pair with the highest relative momentum. Invested signals also require positive absolute momentum, hence the term “Dual Momentum”.

Relative momentum is gauged by the 12 month total returns of each ETF. The 12 month total returns of each ETF is also compared to a short-term Treasury ETF (a “cash” filter) in the form of iShares Barclays 1-3 Treasury Bond ETF (SHY). In order to have an “Invested” signal the ETF with the highest relative strength must also have 12-month total returns greater than the 12-month total returns of SHY. This is the absolute momentum filter which is detailed in depth by Antonacci, and has historically helped increase risk-adjusted returns.

An “average” return signal for each ETF is also available on the spreadsheet. The concept is the same as the 12-month relative momentum. However, the “average” return signal uses the average of the past 3, 6, and 12 (“3/6/12″) month total returns for each ETF. The “invested” signal is based on the ETF with the highest relative momentum for the past 3, 6 and 12 months. The ETF with the highest average relative strength must also have an average 3/6/12 total returns greater than the 3/6/12 total returns of the cash ETF.

Portfolio123 was used to test a similar strategy using the same portfolios and combined momentum score (“3/6/12″).  The test results were posted in the 2013 Year in Review and updated results are below.

The backtest results are 1/1/09 – present and use the “3/6/12″ system. The absolute momentum signal was based on trailing returns greater than 0% as opposed to comparing returns to SHY. Signals were checked every 4 weeks and the next day’s open price used as the execution price:



Below are the four portfolios along with current signals:


Return data courtesy of Finviz
Equity Representative ETF Signal based on 1 year returns Signal based on average returns
US Equities VTI Invested Invested
International Equities VEU
Cash SHY
Credit Risk Representative ETF Signal based on 1 year returns Signal based on average returns
High Yield Bond HYG
Interm Credit Bond CIU Invested Invested
Cash SHY
Real-Estate Risk Representative ETF Signal based on 1 year returns Signal based on average returns
Equity REIT VNQ Invested Invested
Mortgage REIT REM
Cash SHY
Economic Stress Representative ETF Signal based on 1 year returns Signal based on average returns
Gold GLD
Long-term Treasuries TLT Invested Invested
Cash SHY

As an added bonus, the spreadsheet also has four additional sheets using a dual momentum strategy with broker specific commission-free ETFs for TD Ameritrade, Charles Schwab, Fidelity, and Vanguard. It is important to note that each broker may have additional trade restrictions and the terms of their commission-free ETFs could change in the future.

More on this topic (What's this?)
How to Spot a Genuine Momentum Stock
More Sales Momentum For euNetworks in Q2
Infinera Maintained Its Momentum Through Q2
Read more on Momentum at Wikinvest

High Yield Dividend Champion Portfolio Update

The High Yield Dividend Champion stock portfolio has been updated for January. The portfolio is tracked publicly as a continuous hypothetical portfolio with a starting balance of $100,000 on Scott’s Investments. Since inception the portfolio is up over 88% including dividends.

The High Yield Dividend Champion Portfolio uses a small number of historically relevant ideas to create a simple, yet powerful investment plan. As I previously detailed, “Some studies have shown that the, highest yielding, low payout stocks perform better over time than stocks with higher payouts and lower yields.”

The High Yield Dividend Champion Portfolio attempts to capture the best high yield, low payout stocks with a history of raising dividends. There are numerous ways to rank high yield/low payout stocks. The screening process for this portfolio starts with the “Dividend Champions” as compiled by DRIP Investing. The list is comprised of stocks that have increased their dividend payout for at least 25 consecutive years.

I added a valuation filter to the portfolio starting in 2014 in an attempt to mitigate concerns over valuation.  We still begin with the Dividend Champion list, which is first sorted by yield and the lowest 50% yielding stocks are eliminated. Eliminating the lowest yielding stocks ensures only stocks with a relatively “high” yield make the portfolio.

The remaining stocks are then assigned a rank based on their yield (the higher the yield the higher the rank), payout ratio (the lower the payout ratio the higher the rank), 3 year dividend growth rate, and price-earnings (P/E) ratio.  Extra weight is given to yield and payout ratio rankings.

I have also created a second portfolio using similar metrics as the High Yield Dividend Champion portfolio. The primary difference is it only requires 10 years of dividend increases and it also hedges the portfolio during unfavorable market conditions. Hedging requires margin, but the portfolio can also be implemented without the hedge. The portfolio is available on Portfolio123 and backtested results were posted in the June update.

The top 10 stocks based on the new ranking system make the portfolio. Stocks will be sold at the re-balance date (generally around the 5th of the month) when they drop out of the top 15 (to limit turnover) and are replaced with the next highest rated stock.

The top 15 stocks based on my ranking methodology are below and displayed in order of their overall ranking (figures are December month-end):

Name Symbol Yield Payout P/E 3-yr
Helmerich & Payne Inc. HP 4.08 42.64 10.45 116.13
Chevron Corp. CVX 3.82 39.41 10.33 10.86
ExxonMobil Corp. XOM 2.99 34.72 11.63 13.43
Old Republic International ORI 4.99 47.40 9.50 1.41
AT&T Inc. T 5.60 57.67 10.30 2.27
Eagle Financial Services EFSI 3.43 41.88 12.20 2.26
Tompkins Financial Corp. TMP 3.04 46.67 15.36 4.99
McDonald’s Corp. MCD 3.63 66.80 18.41 9.04
AFLAC Inc. AFL 2.55 24.45 9.58 6.36
Community Trust Banc. CTBI 3.28 47.43 14.47 1.60
Consolidated Edison ED 3.82 59.57 15.61 1.64
Questar Corp. STR 3.01 57.58 19.15 6.55
Cincinnati Financial CINF 3.40 60.48 17.81 2.78
Johnson & Johnson JNJ 2.68 46.36 17.31 7.05
Mercury General Corp. MCY 4.36 63.33 14.53 0.72
Eaton Vance Corp. EV 2.44 39.53 16.18 7.62

As previously stated EFSI is not purchased due to its low liquidity.

For January the portfolio is selling First Financial (THFF) for a gain of 4.02% and original purchase date of 7/7/2014.  The proceeds will be used to purchase AFLAC (AFL).

The current portfolio is below:


Position Initial Purchase Date Percentage Gain/Loss Excluding Dividends Current Allocation
CVX 12/6/2012 0.14% 7.92%
MCD 1/3/2014 -3.45% 8.25%
ORI 4/4/2014 -12.15% 8.65%
MCY 9/5/2014 10.31% 10.51%
TMP 8/6/2014 14.51% 11.58%
CTBI 5/5/2014 -5.09% 12.55%
XOM 4/5/2013 3.47% 9.57%
HP 10/6/2014 -32.87% 7.67%
T 3/6/2014 3.28% 11.74%
AFL 1/9/2015 0.00% 11.50%
More on this topic (What's this?)
7 Years Dividend Growth Investor
Best Dividend Investing Articles of 2014
Read more on Dividend Investing at Wikinvest


Below is my reading list for this week:

From Meb Faber: My Portfolio for 2015, Cloning the Largest Hedge Fund in the World: Bridgewater’s All Weather, How did CAPE do in 2014?

From Swedroe: How To Think About Bear Markets

Why the ‘Sucky Strategy’ may be the Holy Grail of investing – MarketWatch

From Alpha Architect: The 2014 Value Stock Research Recap, The 2014 Asset Allocation Research Recap, The Hated. The Feared. The Amazing. The US Treasury Bond

The 5 Best Things I wrote about in 2014 – Pragmatic Capitalism

2014 Portfolio Review – What Strategies Worked & Didn’t Work – Pragmatic Capitalism


More on this topic (What's this?)
2014 Hedge Fund Performance Report
2015 Investing Goals
Read more on Chung Hung Steel at Wikinvest

ETFREPLAY.COM Portfolio for January

The Portfolio holdings have been updated for January 2015.  I previously detailed here and here how an investor can use to screen for best performing ETFs based on momentum and volatility.

The portfolio begins with a static basket of 15 ETFs. These 15 ETFs are ranked by 6 month total returns (weighted 40%), 3 month total returns (weighted 30%), and 3 month price volatility (weighted 30%). The top 4 are purchased  at the beginning of each month. When a holding drops out of the top 5 ETFs it will be sold and replaced with the next highest ranked ETF.

Starting in 2015 the basket of 15 ETFs will be reduced to 14 in order to further simplify the strategy.  PowerShares DB Agricultural Commodities (DBA) has been removed. The 14 ETFs are listed below:

Symbol Name
RWX SPDR DJ International Real Estate
PCY PowerShares Emerging Mkts Bond
WIP SPDR Int’l Govt Infl-Protect Bond
HYG iShares iBoxx High-Yield Corp Bond
EEM iShares MSCI Emerging Markets
LQD iShares iBoxx Invest Grade Bond
TIP iShares Barclays TIPS
VTI Vanguard MSCI Total U.S. Stock Market
DBC PowerShares DB Commodity Index
GLD SPDR Gold Shares
TLT iShares Barclays Long-Term Trsry
SHY iShares Barclays 1-3 Year Treasry Bnd Fd


Bring Your Portfolio Into The 21st Century
Free Access – Special Report

In addition, ETFs must be ranked above the cash-like ETF SHY in order to be included in the portfolio, similar to the absolute momentum strategy I profiled here. This modification could help reduce drawdowns during periods of high volatility and/or negative market conditions (see 2008-2009), but it could also reduce total returns by allocating to cash in lieu of an asset class.

The top 4 ranked ETFs based on the 6/3/3 system as of 12/31/14 are below:

TLT iShares Barclays Long-Term Trsry
LQD iShares iBoxx Invest Grade Bond
SHY Barclays Low Duration Treasury


For January 50% of our current position in SHY will be sold and the proceeds used to purchase VNQ. The strategy continues to hold TLT, LQD, and a reduced position in SHY.

Beginning in 2014 we track both the 6/3/3 strategy (same system as 2013) as well as the pure momentum system, which will rank the same basket of 15 (now 14) ETFs based solely on 6 month price momentum. There is no cash filter in the pure momentum system, volatility ranking, or requirement to limit turnover – the top 4 ETFs based on price momentum will be purchased each month. The portfolio and rankings will be posted on the same spreadsheet as the 6/3/3 strategy.

The top 4 six month momentum ETFs are below:

6 month Momentum
TLT iShares Barclays Long-Term Trsry
VTI Vanguard Total U.S. Stock Market
LQD iShares iBoxx Invest Grade Bond


The 6 month momentum system maintains positions in TLT, VNQ, and VTI. PCY will be sold and the proceeds used to purchase LQD.

Below is a 2 year equity curve for the conservative strategy:

etfreplay conservative

Below is a 1 year equity curve for the aggressive strategy:

etfreplay aggressive

Ivy Portfolio Year End Update

Scott’s Investments provides a daily Ivy Portfolio spreadsheet to track the 10 month moving average signals for two portfolios listed in Mebane Faber’s book The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term moving averages.

**Google docs is currently not updating data properly so please use caution when viewing data on any of my spreadsheets. It appears to be an issue affecting many Google Doc users. I have manually updated moving average data through 12/31/14**

**1/1/15 Update: I have replaced the Google Docs Ivy and Commission Free portfolio with a new spreadsheet which has resolved the issue. Please update any bookmarks or links to the newest spreadsheets found here:

The Ivy Portfolio spreadsheet tracks the 5 and 10 ETF Portfolios listed in Faber’s book. When a security is trading below its 10 month simple moving average, the position is listed as “Cash”. When the security is trading above its 10 month simple moving average the positions is listed as “Invested”.

The spreadsheet’s signals update once daily (typically in the late evening) using dividend/split adjusted closing price from Yahoo Finance. The 10 month simple moving average is based on the most recent 10 months including the current month’s most recent daily closing price.  Even though the signals update daily, it is not an endorsement to check signals daily or trade based on daily updates. It simply gives the spreadsheet more versatility for users to check at his or her leisure.

The page also displays the percentage each ETF within the Ivy 10 and Ivy 5 Portfolio is above or below the current 10 month simple moving average, using both adjusted and unadjusted data. If an ETF has paid a dividend or split within the past 10 months, then when comparing the adjusted/unadjusted data you will see differences in the percent an ETF is above/below the 10 month SMA. This could also potentially impact whether an ETF is above or below its 10 month SMA. Regardless of whether you prefer the adjusted or unadjusted data, it is important to remain consistent in your approach. My preference is to use adjusted data when evaluating signals.

Bring Your Portfolio Into The 21st Century
Free Access – Special Report

The current signals based on December’s adjusted closing prices are below. The spreadsheet also provides quarterly, half year, and yearly return data courtesy of Finviz. However, this data is not currently importing properly so is not included in the screenshot below:

Ivy Portfolio


I also provide a “Commission-Free” Ivy Portfolio spreadsheet as an added bonus. This document tracks the 10 month moving averages for four different portfolios designed for TD Ameritrade, Fidelity, Charles Schwab, and Vanguard commission-free ETF offers.

Not all ETFs in each portfolio are commission free, as each broker limits the selection of commission-free ETFs and viable ETFs may not exist in each asset class. Other restrictions and limitations may apply depending on each broker.

Below are the 10 month moving average signals (using adjusted price data) for the commission-free portfolios:




Many of you have asked for return data of the Ivy strategy.  Below is data for a 10 month moving average system using the Ivy 10  and Ivy 5 portfolio tracked on my site. The test was conducted using, so while signals should match mine the returns listed below are strictly hypothetical. The backtest will invest in the chosen ETFs on the close of the LAST DAY of the period. The test was run 2010-2014 and returns have been underwhelming compared to a traditional balanced mutual fund:

Ivy 10



Ivy 5

Ivy 5

Spreadsheet Issues

Most of the spreadsheets hosted on Google Docs are not updating properly.  The data either does not load or in the case of Finviz data it appears it is not current.

The data sources look correct, so I believe the issue is with Google Docs as I have seen similar loading issues with other users’ spreadsheets.

Hopefully things will be functioning again soon. That being said, if anyone has any insight please let me know.

Holiday Week Reads

If you are looking for any last minute gift ideas, don’t forget to review my reading list here or check out other great deals from Amazon.

Things have been a bit hectic for me lately and I am behind on my reading list.  Here a few articles I am catching up on:

Strategies Can Beat The Market, You Can’t – The Irrelevant Investor

From 4 Ways To Build Better ETF Portfolios, Swedroe: Explaining The Value Premium, Swedroe: Ignore Forecasters At All Costs, Swedroe: Skeptical On The Low-Vol ‘Factor’

From Alpha Architect: An Affordable, Tax-Efficient, Long/Short Hedge Fund; Oil Stocks: A Real-Time Case Study in Value Investing; ValueShares Launches International Quantitative Value ETF (IVAL)

Value + Momentum: The Tortoise and the Hare - Millennial Invest

Efficient Frontier “Theory” for the Long Run – AQR

What Investment Success Looks Like To Me – The Reformed Broker

The Promise of Smart Beta – Research Affiliates

“Do you Want to be Right or do you Want to Make Money?” Pragmatic Capitalism

Measuring Tactical Alpha, Part 1 – GestaltU


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Andrew Klavan's 4 minute history lesson of the real Al Sharpton!
Market Outlook
Read more on Wharf (HLDGS) at Wikinvest