Sunday, October 05, 2014

Update – The IBD Top 50 Stocks Strategy

Here is the latest on the IBD 50 stocks investing strategies vs. $SPY

imageI’ve been tracking the IBD 50 stocks since February.  When the stock market is in an uptrend, the IBD 50 portfolios outperform.  When the stock market is heading south, the IBD 50 portfolios do much worse.  This past week was a prime example of the latter.  If the stock market reversed at the end of the week and is heading higher, then guess what’s going to happen to the IBD 50 stocks?  Zoom!  For the week, there were 20 stocks up and 30 stocks down for the IBD 50. 

ALXN led the IBD 50 with a return of 6.16% for the week.  The biggest loser for the IBD 50 was SLCA, down 14.31%.

The IBD 50 portfolios total return since 2/8/2014 are mixed versus the SP500. The portfolios containing a higher number of stocks tends to perform closer to the SP500, while the portfolios concentrated in fewer stocks tend to be more volatile! 

The portfolio is sold at the closing price Friday night, and rebalanced into the make-up of the IBD top 50.  Dividends are excluded from total returns.

Trading costs $666.65.

image The IBD monthly strategy is a mixed bag compared to the SP500.

The portfolios concentrated in fewer holdings are performing better than the more diversified portfolios. Only the IBD 5 is outperforming the SPY at this time.

For the first few days of October, the IBD 50 has 21 gainers and 29 losers.  The portfolios with more holdings are holding closer to the SP500, while the concentration in fewer high-flyers have taken more of a hit.  But the latter has also outperformed since I started tracking the strategies.

ALXN was the top performer for the IBD 50, returning 7.33%.  The weakest stock in the IBD 50 so far is SLCA, losing 13.04%.

Trading costs $149.25

As I have been reading reviews of investing and rebalancing into model portfolios, the trading costs of rebalancing weekly or monthly is often discussed.  Going forward, I will list the “in and out” rebalancing costs for each strategy.  I will assume a $9.95 cost to sell last week’s or last month’s portfolio, and $9.95 to buy the new weekly or monthly portfolio.  (Imagine the costs of doing this with individual stocks, compared to using Motif.  Note that Motif limits the size of portfolios to 30 stocks).

The Top 25 holdings are listed at at Motif Investing.  (A check as of 3/31/2014 shows that the ability to view all holdings is limited to Motif members and IBD subscribers).

None of the above strategies are a recommendation to buy or sell stocks.  These are model portfolios constructed for entertainment only.

This is the IBD portfolio performance since 2/8/2014.  Each portfolio begins with $10,000 and then invests an equal amount in the top 5, 10, 25 and 50 IBD stocks at the closing prices on Friday for the weekly model, and at the closing prices on the last trading day of the month for the monthly model.  Since IBD changes the make up of their top stocks daily, this will only rebalance on Fridays or end of month.  It is assumed that trading costs are $9.95 to “buy” a model portfolio, and $9.95 to “sell” a model portfolio.  Thus, each weekly or monthly rebalance out of the previous portfolio and into the new portfolio costs $19.90.  Daily changes in the IBD 50 or stock rankings are not considered.  Changes in IBD’s overall market views are not considered.  Stop loss orders or other market timing strategies are not considered. 

Based on a blog entry from Paladin Money.  See Investors Business Daily for more information on the IBD 50.  See Motif Investing for their IBD Top 25 portfolio, and the ability to construct your own portfolio of stocks.

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