Mid year Marketocracy review

Mid-year review: I run some play money mutual funds over at Marketocracy.com to make sure the overall stock picking strategies/methodologies work over time.

Here's my "best effort" fund's performance SMF, a fund I've been managing properly since about mid-to-late 2002. (It's been in existence longer, but the funds were not invested fully until mid 2002.)

Here's a secondary "best effort" fund SOS started in mid-2003 that invests in a lot of the same companies as the first fund, but I've tried a more concentrated approach in the SOS fund where I sell more quickly, and hold larger more concentrated positions. In contrast, I ease out of positions more slowly in the initial SMF fund.

In both funds the past month has been very good to me, otherwise the shorter term performance would be pretty ordinary. Longer term results I think are pretty good.

I use both approaches as tests for sell strategy (sell slowly or sell quickly) because I find left to my own devices I have the tendency to trade out of winning positions too quickly.

In general both the SMF and SOS strategies seem to work well, but I think I the strategy of easing out of a position more slowly over time (the SMF approach) tends to outperform the more aggressive approach of selling more quickly (the SOS approach). This is good to know and helps me resist temptations to move out of stocks too quickly and instead let positions run longer than I would normally be comfortable doing. From a momentum standpoint, stocks that fit my investing profiles will tend run longer than I think they should so I'm probably better to give them more rope.

In practice in my real life portfolios, I've adopted the standpoint that if I'm getting the urge to sell something I own and it's nearing my "fair value" levels I'll sell only a part and let the rest ride.

Another couple interesting thing I'm learning from these funds:

1. Picking a small number of really good growth companies and sticking with them can make all the difference. My biggest dollar gainer is in the SMF fund is Cognizant Technology CTSH (also one of my real life largest holdings). I initially purchased a smallish position in the SMF fund back in August 2003 back at a split adjusted $18.60 per share. CTSH is around $85 today. I added and subtracted to the position through time, but it doesn't take many winners like that to make up for a lot of mistakes.

2. It's entirely possible that the best investments for today may be the the best investments from last year and the year before that. I haven't seen a necessity to change horses very often, as the same names typically keep turning up month after month on my valuation screens. Every once in a while I retire large positions when the business is deteriorating or clearly overvalued (BBY Best Buy and CHS Chicos FAS are two ex-large holdings that come to mind), but in general much of what's here today - especially the larger positions - was likely here a year ago.