Studies of Life

Learning by doing.

Piotroski Portfolio Update Q1 2014

05 April 2014 by Jim

For more recent information, read up on my Piotroski portfolio results in the 2nd quarter of 2014.

The first quarter of 2014 is over, and even though Ukraine caused a nasty drop especially on the European markets, my Piotroski portfolio holds up wonderfully. As you can see, I’m up almost 10% whereas the DAX and DJI barely get to 2.5%. That return is however somewhat untrue because I didn’t stick to this same portfolio for the first 3 months. It has changed over time. So I haven’t actually earned 10%. But I will stop interfering with my own portfolio now – read on to learn why.

I’ve decided to make an additional change to bring my portfolio strategy closer to what Joseph Piotroski described in his paper: I will hold my stocks for at least 6 months, but hopefully even for 12. Why? Active investing is not a good strategy because it’s difficult to catch the highs or bottoms as you know, so selling and buying a couple of times a month is not a good idea. Over longer periods of time, these short-term fluctuations should however cancel each other out. Also, it gives me more peace of mind not to look at the stocks each day (which I still sometimes do, though, but at least I don’t do it with the anxiety linked to having to make a decision).

I’ve calculate that since June 2013 when I started investing, I’ve made more than 160 trades, which equals, in my case, a total cost of 3’920 EUR, which is A LOT. That’s equal to a 4% drop of my portfolio, spend JUST ON TRADING.

It may well be that trading more often (in an ‘obvious’ situation) may sometimes give you another percentage point of return, but sometimes it may also diminish your return because it wasn’t that obvious after all what you should have done. To avoid all those questions, which unnecessarily complicate things, I will reduce my portfolio turnover. After all, who am I to think a simple beginner as me can do better than just follow the strategy outlined by Piotroski TO THE LETTER? Most trading mistakes happen not because people follow a strategy, but because they 1) don’t have one or 2) don’t follow it properly. That’s why hypothetical returns are usually different from reality. Most people just can’t use a strategy like a computer would. But that’s what you need to do: be a trading computer. Decide on a strategy and then stick to it. Additionally, in my wonderful(ly capitalist) home country Luxembourg, profits from investing are entirely tax-free if the investment was kept for at least 6 months.

For anyone who’s interested in imitating my strategy or portfolio, here’s the list of my holdings (bought at equal weight). Since some of the stocks are not very liquid, you may need a few days to pick up all the shares you want to. As explained at the top, the total portfolio return shown here (4.47% right now) is not equal to the return shown at the top because I didn’t hold this portfolio this entire year – some shares were bought in Jan, some in Feb and some in Mar. But I will keep this portfolio here now for 6 months at least to avoid lowering my returns with excessive trading costs (and taxes!)

Piotroski Portfolio Q1 2014


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