Brian Stoffel of the Motley Fool points out that a short squeeze -- a heavily shorted stock that has positive news can induce stocks to rocket up -- another path for a rocket portfolio.
On Aug. 25, 2010, Green Mountain Coffee Roasters (NASDAQ:GMCR) was:
- Sporting a P/E greater than 50.
- Seeing its stock reach record highs, having gone up over 300% in the previous two years.
- Was being heavily shorted.
Clearly, this was a stock to avoid, right? Wrong. The stock is up 190%.
Two key things to look for:
- Innovation wins out.
- Heavily shorted stocks can jump on any sign of good news.
What They Do
Short % of Float
|Entropic (Nasdaq: ENTR)||Connects your home's electrical devices||33%|
|Soda Stream (Nasdaq: SODA)||Soda-making machines for the home||30%|
|Ebix (Nasdaq: EBIX)||On demand e-commerce solutions for the insurance industry||32%|
|Travelzoo (Nasdaq: TZOO)||Travel and local deals||45%|
|First Solar (Nasdaq: FSLR)||Solar power||39%|
|Coinstar (Nasdaq: CSTR)||Redbox DVD rentals and coin-counting machines||37%|
Source: Finviz.com.We are going to compare this with Fredrik Arnold's rocket portfolio.
And an ETF dividend portfolio:
|Asset||Fund in this portfolio|
|REAL ESTATE||ICF (iShares Cohen & Steers Realty Majors)|
|FIXED INCOME||TIP (iShares Barclays TIPS Bond)|
|Emerging Market||VWO (Vanguard Emerging Markets Stock ETF)|
|US EQUITY||DVY (iShares Dow Jones Select Dividend Index)|
|US EQUITY||VIG (Vanguard Dividend Appreciation ETF)|
|INTERNATIONAL EQUITY||IDV (iShares Dow Jones Intl Select Div Idx)|
|High Yield Bond||HYG (iShares iBoxx $ High Yield Corporate Bd)|
|INTERNATIONAL BONDS||EMB (iShares JPMorgan USD Emerg Markets Bond)|
- Fools Short Squeeze Rocket Stocks -- Total of $10K invested equally in each stock
- Fredrik Arnold 5 Rocket Stocks -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
|Portfolio/Fund Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Fredrik Arnold 5 Rocket Stocks||157%||513%||77%||195%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||21%||218%||6%||30%||6%||27%|
|Retirement Income ETFs Tactical Asset Allocation Moderate||16%||172%||12%||97%||11%||81%|
|Fools Short Squeeze Rocket Stocks|
[Click all to enlarge]
The notion of a short squeeze to provide a sharp increase in value is intriguing and it's possible to see in the very recent past that there is a steep rise in the value of the portfolio that would warrant a rocket assignment. However, it is very early in the game and we will track this over the next couple of months to see whether it comes true. The Frederik Arnold 5 still looks awfully good in this company!
Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.