Seeking Alpha
What is your profession? ×
Profile| Send Message|
( followers)

We continue to explore the concept of using momentum strategies on solid stocks held by great investors or funds. In this article, we delve into the performance results on investing in solid value stocks held by the well-known Sequoia Fund (MUTF:SEQUX). The Sequoia Fund is a long running value growth stock fund that employs Warren Buffett's stock investing principles. When Buffett dissolved his investment partnership in the 1960s, he referred this fund to his former clients.

The strategy involves forming a portfolio, P Sequoia Fund Top Stock Momentum, using the following top holdings from the Sequoia Fund as candidates for a momentum strategy:

Valeant Pharmaceuticals...VRX
The TJX Companies, Inc.TJX
Fastenal CompanyFAST
Advance Auto Parts, Inc.AAP
IDEXX Laboratories, Inc.IDXX
Mohawk Industries, Inc.MHK
Precision Castparts...PCP
O'Reilly Automotive IncORLY
Mastercard IncMA
Google IncGOOG
Intl. Business Machines...IBM
Target CorporationTGT
Praxair, Inc.PX
Wal-Mart Stores, Inc.WMT
Perrigo CompanyPRGO

A MyPlanIQ momentum strategy is used to score the above stocks every month. The top five stocks are chosen for this month's portfolio. They are equal weighted. Notice whenever a chosen stock's momentum score is ranked below cash, its portion is replaced with cash.

The following shows its performance:

Performance (As of 05/17/2012)

Annualized Return

Since 12/31/2000 AR*
P Sequoia Fund Top Stock Momentum0%10%22%17%13.95%
VFINX (Vanguard (S&P 500) Index)6%2%16%0%2%
VBINX (Vanguard Balance (60% stocks/40% bonds)5%4%13%3%4.4%

* AR: annualized return

Click to enlarge

The portfolio handily outperformed VFINX (or S&P 500 SPY) by a big margin. See P Sequoia Fund Top Stock Momentum for more performance details.

Currently, the top 5 momentum stocks are:

Holdings (As of 05/17/2012)

ORLY (O'Reilly Automotive Inc)20.47%
TJX (TJX Companies)22.47%
MA (MasterCard Inc)20.18%
AAP (Advance Auto Parts)17.00%
VRX (Valeant Pharmac)19.87%

The above back testing result illustrates that it is effective to use momentum strategy on a set of solid 'good' stocks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.