Long/Short Equity, Growth At A Reasonable Price
Contributor Since 2009
J. Stephen Castellano founded the equity research and financial modeling consulting firm Ascendere Associates in 2009, building upon a diversified 20-year career in sell side and buy side equity research. His roles included coverage of the steel industry at PaineWebber and telecom services at Warburg Dillon Read (the predecessors to UBS), where he worked closely with institutional sales people, traders and investment bankers. In addition, he provided analytical support for numerous independent valuation, consulting and investment banking studies, including for mergers, secondary offerings and IPOs. At Ascendere Associates, in addition to developing equity research for family offices and other clients, he has consulted for a wide range of startups, established businesses, and global consulting firms. Mr. Castellano holds a B.A. in English from Oberlin College, an MBA from the F.W. Olin School of Business at Babson College, and has passed the first two levels of the CFA exam.
This is an update to our model portfolio report, 35 Stocks for December 2017.
We have noticed that the combining the Core Long Model with the Opportunistic Short Sale Model has outperformed the other long/short models in seven out of the last nine years. This version of the model has done well by staying long stocks during volatile periods, and locking in short sale gains and capping short sale losses during volatile periods. It remains to be seen if this version of the model will similarly outperform in a down-trending or sideways market.
The Base models can sometimes contain up to 100 stocks. These are more interesting to track in terms of general trends for high-quality stocks and low-quality stocks. The Core and Opportunistic models are derived from the Base Models.
Our criteria for selecting stocks in these model portfolio strategies, which heavily weight proxies for cash flow growth and ROIC, include the following:
We rebalance our model portfolios every month and have been tracking long-only and long/short unaudited theoretical daily returns since March 31, 2009. This theoretical return data does not make any assumption for costs such as execution fees, margin, slippage, or any other type of cost.
This return data, including more than two years of rolling 12-month return data for each model portfolio report that we have collected so far, is available on request.
Tables below have been updated to include December 2017 data.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: There are limitations inherent in our theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. Theoretical return data reflect simple cumulative returns (not compound returns) and do not assume the impact of costs such as execution fees, margin fees, slippage, the availability of stocks for short selling, or any other kind of cost. We do our best to provide accurate information in this report, but do not guarantee its accuracy.