Revealing Our 2017 Portfolio

by: Jae Jun


Revealing the selected portfolio for 2017 based on our grading system.

How each portfolio is constructed.

My personal portfolio building tips for the passive and active investor.

Based on the requests and questions on how to build a portfolio using OSV Online and our stock grader called "Action Score", I'm revealing the 2017 model portfolio that I'll be tracking throughout the year.

The Rules

Here are the rules for the portfolio:

  • No changes until end of the year, unless a company is bought out and needs to be replaced.
  • 20 stocks @ $5k each for a $100k portfolio
  • A grade stocks (but can include B if there aren't enough As).
  • No OTC stocks due to many people not wanting or being able to buy them. (Nothing wrong with OTC stocks, though.)

The Original 2017 Portfolio

I call this the Original Portfolio - but it's not the 2017 version I will track.

Here's why.

This list has 7-8 retailers in the list. Out of 20 stocks, that's at least 35% of the portfolio in a single industry. This is the only instance where I meddle with the portfolio.

At most, I include 2 stocks from the same industry, as I'm after a diverse range of stocks with a view to limit the downside.

35% of a portfolio in a single industry is too risky, because if the economy tanks, retailers are the first to go.

Original 2017 Action Score Portfolio

Fashion products like Vera Bradley (NASDAQ:VRA) and Michael Kors (NYSE:KORS) make me nervous.

Also, I purposely removed OTC stocks from the list, as I figure 90% of investors won't be buying them. As a model portfolio, the idea is to make it realistic.

My rule of thumb is 2 companies in the same industry. I get away with 3 sometimes, if the business is completely different. For e.g., I would not own 3 clothing retailers. But if one was a chocolate store, one was in car auto parts and the other was a discount store, that is acceptable.

Revealing the Selected Action Score Portfolio for 2017

The Selected 2017 Action Score Portfolio

These stats are based on a January 2 start.

Here are the extra stocks I removed, based on the 2-per-industry rule:

  • MIK
  • VRA
  • URBN
  • KORS
  • GPS
  • TTM
  • FSI
  • NE
  • AEO
  • CUO (removed due to volume. Can't buy enough to build a position.)

My Personal Portfolio Building Tips for the Passive and Active Investor

The portfolio above is a model portfolio. When I reference the "2017 OSV portfolio" or "2017 Action Score Portfolio", the selected list is what I will be referencing.

For the Passive Investor who wants to follow a quant strategy, the model portfolios are simply buy and hold for one year strategies. But...

  • What if a stock is bought out?
  • What if a stock changes to an F?
  • What if I can't buy enough of a stock?
  • What if I don't want to buy a full position?
  • What if I dollar-cost average?

These are scenarios that I did not test in the backtest. With so many variables and possibilities, I wanted to keep it simple.

Make sure you refer to the summary of how I created the Action Score algorithm and the 2016 results, which go into very deep detail.

I don't have precise, scientific reasons or results to answer these questions, but I can give you some ideas on how to handle it.

For the Active Investor who wants to leverage the stock grades and Action Scores, the most common question in addition to the ones above is:

  • What if the DCF or other stock valuation method says an A grade stock is overvalued?

The answer is another article, which I've already written in our tutorials and documents section.

Q: What if a stock is bought out?

A couple of options and ideas.

  1. Purchase a new company with the highest rating at the time.
  2. Replace with another A grade stock.

Q: What if a stock changes to an F?

This rarely happens.

Well, it did with Cal-Maine Foods (NASDAQ:CALM). If the stock is on a mega-high from a very cyclical year, with the following year expected to drop, it will fall.

  1. In keeping with the original strategy, you can hold for one year.
  2. Or you can sell and replace with a new A stock.
  3. Or you can sell and replace as it drops to a D.

Q: What if I can't buy enough of a stock?

If you are trying to buy an OTC stock and it runs up on you, WAIT. Do NOT chase.

Based on the price, the value score could be affected. Wait for a day or two to see if the grade and score stabilizes, and make a decision as to whether you should buy or wait for the initial price.

Q: What if I don't want to buy a full position?

If you want to test the waters, you could break up your portfolio into 2 sub-portfolios, one for the Top 20 Action Scores and another one for the Top 20 Quality Scores.

For e.g., if you have a $200k portfolio, $100k could be assigned to buying 20 stocks from the Action Scores list, and the other 100k could be used to buy the top 20 highest-quality, -value or -growth stocks.

You end up with 40 stocks and, theoretically, two portfolios. You've also spread out your bets more.

Q: What if I dollar-cost average?

Keep an eye on the grade and scores and either put it equally into the top 20 or wait until you have enough for a full position and look for the next best bet.

2017 Action Score Portfolio Live

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

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.