The Great Experiment: Marketocracy Funds Update
About six weeks ago, I set out to conduct an experiment on concentration vs. diversification. I wanted to see how managing a focused portfolio was different from managing a widely diversified portfolio. How would the returns from each type of fund compare?
I created five virtual funds at Marketocracy, placing different restrictions on each. Click below to be taken to the fund page on Marketocracy.
David Fund: May only invest in companies with a market cap less than $1 billion (at time of purchase).
Goliath Fund: May only invest in companies with a market cap greater than $10 billion (at time of purchase).
Jersey Fund: May only invest in companies headquartered in New Jersey.
Shotgun Fund: Attempts to divide assets evenly over top 100 investment ideas.
Sniper Fund: Attempts to divide assets evenly over top 20 investment ideas.
David Fund
This fund has about 12% of its assets in cash. The other 88% of assets are divided among eight stocks as follows:
Overstock.com (OSTK): 16.91%
Jakks Pacific (JAKK): 15.33%
Blyth (BTH): 14.34%
Craftmade (CRFT): 9.14%
Journal Communications (JRN): 8.15%
Rex Stores (RSC): 8.12%
Tuesday Morning (TUES): 8.07%
Weyco Group (WEYS): 7.69%
Since inception (1/28/06) the David Fund has returned 1.39%.
Commentary: OSTK and JAKK have carried this fund. At present, I’m happy with the valuation of these eight stocks relative to the market, and look forward to rounding out the roster by finding one or two additional bargains under $1 billion.
Goliath Fund
This fund has just under 50% of its assets in three stocks: Posco (PKX), Deutsche Telekom (DT), and Home Depot (HD). The other half of the fund’s assets is spread over 22 different stocks.
Since inception (1/28/06) the Goliath Fund has returned 3.97%.
Commentary: Most of the other 22 stocks were selected according to Joel Greenblatt’s “magic formula”. Energy and financials are largely absent from this fund. I hope to keep it that way. I don’t expect to make any changes to this fund in the near future, and believe Goliath’s long-term results relative to a basket of all stocks in the $10b+ universe will likely prove satisfactory.
Jersey Fund
This fund has 100% of its assets divided among 10 stocks:
Village Supermarket (VLGEA): 19.86%
Journal Register Company (JRC): 13.90%
J&J; Snack Foods (JJSF): 8.85%
Avaya (AV): 8.62%
Dendrite (DRTE): 8.25%
Campbell Soup (CPB): 8.20%
Movado (MOV): 8.19%
Emerson Radio (MSN): 8.14%
Church & Dwight (CHD): 8.02%
Engelhard (EC): 7.37%
Since inception (1/28/06) the Jersey Fund has returned 1.78%.
Commentary: I’m very dissatisfied with this group of ten stocks. There are few opportunities in New Jersey at the moment; however, I have decided not to hold cash, because the NJ investment universe is limited. I’d rather sell out one or more positions to move into a bargain when it appears, than to sit on a lot of cash. I believe the lower eight stocks will offer a better return than cash – but, not much better. I am eager to dispose of them. I am also eager to bring down the P/E ratio on this fund. At present, the Jersey Fund’s future prospects look relatively poor. I hope to make changes to this portfolio whenever Mr. Market is more obliging.
I have nothing to say about the Shotgun and Sniper Funds, because I would have to discuss too many stocks. I will report back to you on these funds once a longer period of time has passed. Six weeks is not enough time to prove anything.
Visit the Blogosphere Club at Marketocracy
All readers are welcome to join the Blogosphere club by first registering at Marketocracy and creating a virtual fund.
I’m sure everyone would like to hear from the other members of the Blogosphere club. Please post your thoughts on the experiment and your own virtual funds.
I’m also eager to read your comments about the stocks in my virtual funds.
Please remember that none of these funds are representative of my personal portfolio, because of the severe restrictions placed on each fund. Also, the fact that one of my virtual funds holds a certain stock does not mean that my view has changed on that stock. For example, the fact that my Jersey Fund holds JRC does not mean my analysis of JRC has changed. Please don’t take these virtual funds that seriously. I will do my best within the restrictions imposed, but that does not mean the stocks mentioned above would necessarily make good investments.