Analysts "Hot Buys" falling way, way behind their "Dump It" stocks

Back in March, here and here, I detailed two model portfolios, one of which analysts said was going to underperform, while the other portfolio was the subject of numerous "strong buy" analyst recommendations.

As originally suggested, these look like they have turned into valid contra-indicators, with the "strong buy" portfolio, now displaying an average loss of -20.0% (similar median loss), and with only 4 of the stocks having any type of positive return. (Prices measured at market close on Friday Aug 11, 2006)

On the other side of the coin, the underperform portfolios, both in the Canadian and US versions, have both produced a positive average return. This has amounted to an average gain of +5.6% (median of +5.7%) for the Canadian stocks, and +3.7% average (+7.5% median), for the US stocks.

This again suggests that "value" stocks remain consistently underestimated, even (especially?) by professional analysts. (Follow link contained here and here to see possible reasons why).

Makes one wonder why they'd have any money in almost any conventional mutual fund, (with a few notable exceptions [Bill Miller, Marty Whitman, etc.])? Next time your broker trots out the "strong buy" recommendation, it's OK to leave the room screaming,

No, you'll never take me alive ... or my money ...

JW

The Confused Capitalist

The Tortoise and Hare Portfolios

Back in mid-March, I profiled two model portfolios, based on aggregate analyst recommendations. One, nicknamed "The Tortoise" portfolio, was designated by analysts as an "avoid" situation, while analysts were universally effusive in their praise of "The Hare" portfolio.

At the time, I suggested that those rankings could well be reversed in the real world: that is, the Tortoise Portfolio could well outperform the Hare Portfolio.

I recently checked in on them, and as of May 24, here's how they've been doing:

• The US Tortoise portfolio: -5.5% (Benchmark S&P500 [via SPY] -3.7%).

• The US Hare portfolio: -10.9% (Benchmark Nasdaq Index [via QQQQ] -6.1%)

I guess I'd have to give this one to the Tortoise to date; although both lost against their respective benchmarks, because while the Tortoise lost 48% more than the benchmark, the Hare lost 78% more than it's respective benchmark.

• The Canadian Tortoise portfolio lost 1.1% over the same time frame, compared to it's benchmark, the TSX/SP60 index (via XIU) which had a loss of 6.2%.

So, to date, the Tortoise portfolios are beating the Hare portfolio. We'll check in again later to see how they're all doing.


JW

The Confused Capitalist