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AAII screens and shadow portfolio?


bargainman
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Does anyone out there follow AAII's screens and/or shadow portfolio?  Their returns are pretty phenomenal, but I wonder how easy/difficult they are to actually follow, especially in a taxable account.

 

It's impossible to achieve the returns in the screens since they are theoretical, rebalance monthly, don't take slippage and liquidity into account, etc.

 

The Shadow Stock portfolio, however, is a real money portfolio. If you follow the trading guidelines, you have a good chance of replicating the results. Beware that it is a very volatile portfolio, though.

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Does anyone out there follow AAII's screens and/or shadow portfolio?  Their returns are pretty phenomenal, but I wonder how easy/difficult they are to actually follow, especially in a taxable account.

 

It's impossible to achieve the returns in the screens since they are theoretical, rebalance monthly, don't take slippage and liquidity into account, etc.

 

The Shadow Stock portfolio, however, is a real money portfolio. If you follow the trading guidelines, you have a good chance of replicating the results. Beware that it is a very volatile portfolio, though.

 

Their screens performance is flawed, although in the grand scheme of things it shouldn't matter that much.  Their performance assumes that each stock in a screen is purchased at the beginning of the month based on the end of the prior month's closing price.  However, the screen itself doesn't come out until the middle of the month (each screen is updated on the 15th day of each month).  So they have assumed a purchase based on "future" information.  Of course the screens are just representative in a sense and it could be argued that it all evens out over time, but still it feels wrong to me to publish data that would be impossible to actually replicate. 

 

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Does anyone out there follow AAII's screens and/or shadow portfolio?  Their returns are pretty phenomenal, but I wonder how easy/difficult they are to actually follow, especially in a taxable account.

 

It's impossible to achieve the returns in the screens since they are theoretical, rebalance monthly, don't take slippage and liquidity into account, etc.

 

The Shadow Stock portfolio, however, is a real money portfolio. If you follow the trading guidelines, you have a good chance of replicating the results. Beware that it is a very volatile portfolio, though.

 

Their screens performance is flawed, although in the grand scheme of things it shouldn't matter that much.  Their performance assumes that each stock in a screen is purchased at the beginning of the month based on the end of the prior month's closing price.  However, the screen itself doesn't come out until the middle of the month (each screen is updated on the 15th day of each month).  So they have assumed a purchase based on "future" information.  Of course the screens are just representative in a sense and it could be argued that it all evens out over time, but still it feels wrong to me to publish data that would be impossible to actually replicate.

 

I think this is true if you go for the standard subscription, but if you get their 'pro' product, then you get to run the screen yourself whenever you want..  I wonder what the slippage is on a real implementation...

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Their screens performance is flawed, although in the grand scheme of things it shouldn't matter that much.  Their performance assumes that each stock in a screen is purchased at the beginning of the month based on the end of the prior month's closing price.  However, the screen itself doesn't come out until the middle of the month (each screen is updated on the 15th day of each month).  So they have assumed a purchase based on "future" information.  Of course the screens are just representative in a sense and it could be argued that it all evens out over time, but still it feels wrong to me to publish data that would be impossible to actually replicate.

 

Yes, they are flawed, but publishing on the 15th day isn't the issue. As bargainman mentioned, if you have their stock screening software SIPro you can run the screens at any time. At most, I would use their published screens as idea generators (if I'd even use them at all).

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I have a subscription to SIPro and use several of their screens along with some of my own to find ideas.  The data seems to be pretty good and the there's a ton of criteria you can screen. I find it much better than the online apps (or at least I haven't found a better one). Plus the $200 a year is a whole lot less than Value Line.

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The attached may be of interest.

 

Interesting paper, but in my experience what kills this kind of strategies are the spreads. You never buy at the price the stock appears in the screen and you never sell at the price it has when it leaves it. When I do backtesting, I always assume at least a 2% loss+ commission in each roundtrip transaction (sometimes is better than that, but I'd rather be conservative). Which means that trading each month is absolutely crazy, you'll never make any money. In addition, most of those stocks are thinly traded, so whenever the screens come out, everybody and his dog are trying to buy the ones featured  in the best screens. For some time that was obvious with the Piotroski-9 screen, which was shooting up like a rocket.

 

So what I would do is try to use something similar in spirit to the Piotroski, Neff and Graham Enterprising Investor screens (look for statistically solid, cheap stocks), but not exactly the same, so that you limit somewhat the "crowding" I mentioned, and then trade every 12 months, (that way you can take advantage of the different tax rates by selling losers one day before and winners one day after the short-term/long-term gains deadline).

 

 

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In addition, most of those stocks are thinly traded, so whenever the screens come out, everybody and his dog are trying to buy the ones featured  in the best screens. For some time that was obvious with the Piotroski-9 screen, which was shooting up like a rocket.

 

Agreed. When the average daily volume is less than my minimum position size (or even is a few multiples of it) then the advantage of "investing where the big money can't" turns into experiencing the limitations of that big money.

 

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