Fast forward: 4 years into 7million7years - amazingly schizo "forgotten portfolio" re-examined.

---

Further to my earlier re-discovery of a pretend portfolio I setup four to five years ago on Collective2, I thought it might be interesting to explore what's happened since I set it up, and how precisely I set it up.

Further, followers of 7million7years.com might be interested in doing a "fast forward" and so start to imagine how things might be when they're four to five years in, given any portfolio they may have setup at the start of the project.

Previous post

S&P500stox portfolio on Collective2

Today the idea of deliberately setting-up a "buy and forget" portfolio is largely discredited, especially as "Rule #1" advises you to watch technical indicators to tell you when to get in and when to get out of particular stocks, so this post will be a rare exploration of what does happen in this unfashionable strategy.

The main thing that struck me was glancing the performance graph - the stocks I'd chosen weren't performing that well when the market was surging upwards, but when the market collapsed, it held up remarkably well - was this levitation ?

This was particularly remarkable for me, as I'd always imagined that when the news was full of phrases like "the market is crashing" then everybody's portfolio would be decimated.

Indeed, looking at the graph, there's a small dip, but essentially it seems to continue its gentle rise upwards - for heaven's sake, what stocks can these be to collectively buck the trend so determinedly?

Scrolling down the Collective2 webpage a fair way, you'll come across a listing of stocks but only those trades which have been closed out.

Only the owner of the system and his subscribers can see the currently open positions.

The open positions stock listing looks like this:

Down the lefthand column you'll find "BTO" which are standard "long" positions, that's straightforward ordinary buys; and "STO" which are short sells, where I profit if the stock price goes down.

All those in the graphic are STO's - see particularly FITB which I sold at $37.17 and its current price is $7.13 so I will have a profit of $2,223 if I close out the trade.

Let's have a look at the chart of Fifth Third Bancorp (FITB):

Ah! Now I understand - I was on both sides of the market. Part of my stocks would profit if the market went up, and some of my stocks would profit if the market went down.

How did I find poor stocks that were expected to fall, and that would plummet if the market fell? The answer: Zacks. They rate all stocks on a scale of 1 to 5 - some I bought were rated 1; and others, rated 5, I sold short.

Mystery explained ! These aren't all exceptional stocks that hold up when the whole market's tanking - I had traded on both sides of the market - I had a portfolio that had stellar grade 1 long buys; and I sold short the dismal grade 5's.

Thinking about it now, back in those incredibly bullish times, when everybody thought the market would keep going up and up, "the end of boom and bust" as our Prime Minister claimed, that was an incredible thing to do, to deliberately set aside part of a portfolio for the "dogs" too.

I suppose that to some extent explains why the up-curve phase isn't as steep as the underlying index: I had "baggage on-board" that would primarily profit from a downturn - my selection of short sells.

KC
---