August 2020 performance update
Hey folks, here with the latest performance update. We’ll keep it short: Prime was up in August (but not as much as the market) and Select was about flat. My high-level takeaway is that the performance of all three of the putative portfolios we track here (Prime, Select, and SPY) was affected to an unusual degree by outliers for better or worse (i.e., one or a handful of stocks performing very differently than the rest within each portfolio). If I’m right about that, it means it would be worthwhile to be very cautious extrapolating August’s results out in the future—which probably seems pretty sensible to anyone following events unfolding in the world outside of Wall Street. A few callouts on this front:
The big outlier for Prime was Southwest (LUV), which was up 22.21 percent in the month. Outliers on the upside are good, obviously. I’m especially pleased with this one because (1) it was the top-ranked stock in SPC’s algorithm last month and (2) because it provides prima facie evidence that SPC’s model may be doing a good job at differentiating among operationally “similar” companies, such as companies in the same industry, since United and American were among the lowest-ranked stocks in the sample universe. As I noted almost two months ago, while most of the airlines are “garbage” stocks, Southwest is different.
On the other hand, outliers on the downside are never fun. In the case of the Select picks this month, that was Cisco (CSCO), which was down 10.44 percent, apparently mostly falling after a bad earnings call on Aug. 12. Mixed with the good results among the Prime stocks, the set overall ended the month pretty much exactly where it started. Nature of the beast, that’s why the Select picks are free—they’re just not quite good enough to be Prime.
As for SPY, that’s a big basket of stocks, but it was really just an explosive month for the four biggest stocks in the index: Apple (AAPL), which was up 26.28 percent; Microsoft (MSFT), which was up 12.99 percent; Amazon (AMZN), which was up 11.59 percent; and Facebook (FB), which was up 19.25 percent. Those four companies alone made up almost 20 percent of the market value of the entire S&P 500 at the start of August. The rest of the index (excluding these four tech behemoths) was up 3.9 percent for the month based on my calcs.
Overall, there’s no doubt about it: if the market is going to return 6.39 percent in a month (an annual rate of 110.3 percent = 1.0639^12-1)—you really should just be in the market. It’s just that simple. But I wouldn’t expect returns like that from the market in an average month. Historically, the average monthly return on the S&P 500 is 0.62 percent since January of 1928 (an annual rate of 7.7 percent = 1.0062^12-1).
That’s all for now. You can check out the position-level August performance for our Prime and Select picks on our performance page and our picks for September here to get in on the action. Of course, if you haven’t already, follow Stoney Point on Twitter for the latest updates (@StoneyPointCap).
