The ‘challenging’ investment goal of the SmallTrades Portfolio (“portfolio”) is to outperform the Standard and Poors 500 Total Return Index (“benchmark”) on an annual basis. My investment strategy is to rebalance a diversified set of index ETFs that generate 80% of the portfolio market value and to speculate in stocks that create 20% of the portfolio market value. The year-end portfolio holdings are shown in the following table:
In 2013 the portfolio market value increased at the annual rate of 2.1% while the benchmark surged upward at the annual rate of 32.4%. The following chart shows that since 2007, the portfolio has not recovered from the impact of the 2008 Recession and continues to underperform the benchmark. The portfolio underperformed its benchmark in 2013 because every exchange traded fund (“ETF”) lost value.
The data are year-end market values relative to the market value on 12/31/2007.
I am optimistic that the index ETFs will gain value over the long term. The speculative trading of stocks might be improved by implementing better stock screens for undervalued securities.
Douglas R. Knight
