How many stocks should I use when constructing a portfolio? [ top ]
The more stocks you own, the
greater your portfolio’s diversification and the lower the
risk. Optimally, you should purchase all 36 of the
stocks in the Superstars Portfolio. However,
commission costs as a percentage of portfolio value
will be higher when purchasing only a few shares of
each stock. You should use a deep discount broker if
you are managing your own portfolio. There is little
reason to be paying more than $20 a transaction and,
depending on your need for other services, you can
get executions for much less than that. If you cannot
own all 36 stocks in the SSR portfolio, then we
recommend that you hold at least 16 stocks, with four
from each group. Furthermore, you should invest
equal dollar amounts in the individual stocks you
purchase.
Why should I select equal numbers of stocks from each group and invest in equal amounts? [ top ]
If you choose less than 36 stocks, it is imperative
that you divide them as equally as possible among
the four groups to be as efficiently diversified as
possible. You should hold at least 16 stocks—four
stocks from each group. Furthermore, you should
invest equal dollar amounts in the individual stocks
you purchase. This is essential if you want to achieve
the maximum return with your acceptable level of risk.
Buying odd lots of stock (less than 100
shares) is not the issue it once was; no additional
transaction cost should arise from doing so.
How are stocks that are deleted replaced in the SSR portfolio? [ top ]
Once a month, those stocks that were deleted during
the previous month are replaced with new ones to
bring the SSR portfolio back to 36 stocks. Within the
four groups, however, the same number of stocks that
were deleted are not necessarily added to the portfolio. In other words, just because two stocks
were deleted from one group does not mean that two
replacements are added to the same group.
Portfolio additions are made on a rotating basis
from the four groups. This allows better-performing
strategies to increase their weight for subscribers
holding the complete portfolio. If four stocks need to
be replaced in a month, then a new stock will be
added to each of the four groups.
What this means is that, over time, there may be
one group that has fewer stocks than the other
groups. The intended result is to weed out weaker
(underperforming) groups and let better-performing
groups dominate. We are constantly monitoring
alternative selection strategies and, when appropriate,
weaker-performing strategies will be replaced with
better-performing strategies. When this happens, we
alert subscribers to the change in the monthly SSR
newsletter. However, stocks that are still held in an
underperforming group will not automatically be deleted.
Stocks will only be deleted if they meet the SSR
requirements for removal.
Do you have any advice as to when or how often one should rebalance their portfolio? [ top ]
We do not advocate active rebalancing of SSR
holdings—selling off partial positions of holdings that
have grown or adding to positions that have
underperformed. However, when buying stocks to
replace those that have been deleted from your SSR
portfolio, we do recommend that you invest amounts
that are proportionate to the average holding size of
your overall SSR portfolio.
Here is a simple way to determine the approximate
amount to invest when buying stocks to replace those
that have been deleted from your SSR portfolio.
Begin by calculating the average position size (in
dollars) for each of the stocks in your SSR portfolio.
This is merely the process of adding together the
market value of each of your SSR stocks and dividing
the total by the number of SSR companies you own.
This average is approximately the amount you should
try to invest in each of the new SSR stocks. For
some months, investing this amount will leave you
with cash left over. This will happen if you have deleted a
stock for a gain. If you are not averse to holding cash,
this can be used in those months where you may
have deleted a stock for a loss. Otherwise, invest the
cash you have on hand equally in the stocks you are
buying.
If you find that you do not have enough cash on
hand to invest the average holding amount and you
are not willing to add new money to your portfolio,
than any cash available should be invested equally
among the new stocks.
I am a new subscriber to the SSR. Should I invest in all 36 stocks or only invest in stocks as they are added to the portfolio? [ top ]
No matter when you subscribe to the SSR, we
recommend that you purchase the 36 stocks
comprising the SSR portfolio over a relatively short
period of time. If you choose to own less than 36
stocks, you should purchase at least 16 of the SSR
stocks, again over a relatively short period of time,
with an equal number of stocks from each of the four
groups. No matter how many stocks you purchase for
your SSR portfolio, you should invest equal dollar
amounts in each individual stock. If you are
concerned about purchasing stocks that have been in
the portfolio for some time and are purchasing less
than 36 stocks, you may wish to construct your SSR
portfolio from stocks that have been added to the portfolio
most recently. However, you may wish to avoid a recently added stock that has a relative strength value well below others in the group if it is in a growth-oriented strategy.
Do you have any advice as to which broker I should use? [ top ]
We do not favor one broker over another. However, AAII survey members on their experience with online discount brokers; you can see weekly results and an annual tabulation of the Discount Broker Survey at the Investor Surveys area of the AAII website. AAII also publishes an annual Discount Broker Guide that provides an in-depth comparison of the most popular brokers from our survey of members; you can access the Discount Brokers Guide in the AAII Guides area of the website.
Will the Stock Superstars Report be turned into a mutual fund? [ top ]
The costs and resources associated with starting
and running a mutual fund prohibit the SSR from
becoming a mutual fund. Furthermore, money
management is outside the focus of AAII’s research
and educational mission.
How will new stock selection strategies be integrated into the SSR portfolio? [ top ]
We are constantly monitoring the performance and
interaction of numerous stock selection strategies. It
is our policy to replace an existing SSR strategy with
a new strategy when warranted by its risk-reward
relationship with the overall SSR portfolio. When
introducing a new strategy, it is gradually shifted into
the SSR portfolio through the usual monthly portfolio additions. There will continue to be four
groups and the old strategy would be replaced with a
new strategy with similar characteristics, but a better
risk-reward profile. Stocks from the previous strategy
are identified, but they should be held until deletion from the portfolio. We are trying to take
a longer-term perspective and avoid excessive
turnover, transaction costs and taxes.
When purchasing stocks should I invest equal share amounts or equal dollar amounts? [ top ]
You should try to invest equal dollar amounts within
each group and then also equal dollar amounts in
each stock in the group. The key is equal initial dollar
amounts, not number of shares, in each stock. Purchasing
odd lots of shares (less than 100 shares) is
not the cost issue it once was.
Should I use stops in my SSR portfolio? [ top ]
Portfolio deletions for the SSR portfolio are
issued when a stock shows weak relative or absolute
performance, or exhibits changing financial conditions contrary to the selection approach. While the SSR portfolio does not make
use of stops, you may want to implement your own
stop points in order to lock in some level of profits.
However, the point at which to take a profit is very
much a subjective one. Also, be aware that stop
orders can be dangerous on many stocks. On a slow
trading day, traders can run a stock up or down to hit
stops and then let the price return to “normal” levels.
Also, there is no proven level that is best to offer price
protection; it depends on the volatility of each stock.
Ultimately, you sell to avoid real disasters—Enron,
Adelphia, etc.—but selling too quickly can lead to
whipsaw losses that can add up over time.
Whether you are buying or selling, be cautious
about trading early, particularly at the open, on the
first day after a portfolio change. If you are a buyer,
give the sellers time to get involved in the market.
Depending on market action, you may wish to try to
buy on weak days. Also, it is always safer to employ
limit orders. The stocks added to the portfolio are reasonably liquid and additions to the portfolio alone
should not affect the price significantly for any
extended period of time. If you are buying a large
number of shares, you might buy some one day and
some another. While we generally suggest acting on portfolio additions and deletions within the week, you can wait longer if you
feel the stock is moving in your favor.
Why can't I invest in just one of the SSR groups? [ top ]
The four SSR groups represent four separate
approaches that have shown strong performance
during both bear and bull markets. We are continually
monitoring the success of a wide range of approaches
and will adjust and replace a given SSR strategy if its
risk-adjusted performance starts to lag the market.
We don’t just use the best single strategy because
market conditions may change quickly and we do not
want to leave the whole portfolio vulnerable to such a
market change. The risk of the overall portfolio is
controlled and reduced through the diversification of
investing in each of the four groups. We have no way
to predict how the strategies will perform going
forward, but we select approaches with a good
historical track record.
Where can I find a listing of all of the transactions for the actual SSR portfolio? [ top ]
A comprehensive list of transactions for the actual
SSR portfolio—including trades,
dividends, interest income, etc.—is presented here on the site. The transaction history can be accessed by clicking on the
transaction history link located at the bottom of the Performance page on the website. The list of
transactions is updated on a weekly basis.
Is the SSR strategy actually traded? [ top ]
An actual portfolio was started at the beginning of
2002 that follows the SSR strategy from the
perspective of a subscriber. Trades are not placed
until after portfolio alerts have been issued to our
subscribers via email, Web, and telephone hotline.
Actual discount broker commissions and fees are
incurred and are figured into performance calculations.
A comprehensive transaction record of the portfolio is
available in the Performance area of this site; click on the transaction history link at the bottom of the page.
What should I do with cash dividends I receive from my SSR stocks? [ top ]
We do not reinvest cash dividends paid by stocks
held in our SSR tracking portfolio. Cash income is
invested in new SSR purchases. What you choose to
do with your cash dividends, however, is entirely up to
you. One thing to consider, however, is that if your
account is taxable and you choose to reinvest your
cash dividends, you will need to keep track of the
cost basis of these additional investments.
What should I do with shares I receive from spinoffs? [ top ]
Occasionally, the companies in your SSR portfolio
will spin off operations, resulting in you receiving
shares of the new company that is being spun off. It is
the policy of SSR to delete these shares and hold the
proceeds in cash to use for future purchases.
Is there a minimum amount of money you recommend investing in the SSR system? [ top ]
We recommend that you hold at least 16 SSR
stocks, with four from each group. Furthermore, you
should invest equal dollar amounts in the individual
stocks you purchase. The more money you invest in
the SSR system, the lower the transaction costs per
share or per investment. Keep in mind that
commission costs will be higher when purchasing
only a few shares of each stock. You should use a
deep discount broker if you are managing your own
portfolio. There is little reason to be paying more than
$20 a transaction and, depending on your need for
other services, you may be able to get executions for
less than that. When deciding how much money to
commit to your SSR portfolio, keep in mind that
buying stocks in small value amounts will lead to
higher transactions costs as a percentage of your portfolio’s value that will, over
time, impact your performance.
