My Portfolio Report Card

To start the month, I explained how I was refining my time-tested large-cap earnings momentum/valuation-sensitive strategy, which has outperformed the S&P 500 by more than 200 bps annually for the last 16 years. Last year was blasé for me. It does happen occasionally and current market conditions required some changes. I started increasing my trading frequency from once or twice a month to at least weekly in order to keep the portfolio absolutely as fresh as possible. I also added a second derivative measure that emphasizes trending, in order to catch names that not only have earnings momentum, but accelerating earnings momentum. Layered on that is my usual valuation discipline -- looking for P/Es in the bottom 50% of the universe -- and fundamental assessment as to whether the quantitative measures are explicable and sustainable. That all sounds great, but in investing the only question is whether it works, and the answers are always in black and white, in the numbers. Obviously you cannot declare victory in any strategy adjustment after one month, but you do hope to see improvement starting to get traction. For my adjustments, so far so good. This portfolio is up 2.9% for the month, outperforming the S&P 500 by 467 bps. (The S&P is down -1.7% as of last night.) As important, there have been several winners propelling that performance and most are running because the earnings reports have been stellar. Here are the big winners so far out of a 32-stock portfolio: The rest are a grab-bag of small pluses and minuses, with only a couple that you'd consider a big loss, such as Pilgrim's Pride (PPC) -7.7% or Rite Aid (RAD) at -5.1%. The performance of some names was driven by upside earnings surprises, in this case being genuine surprises rather than the standard one- or two-penny upsides. Some headlines (from Briefing.com): Apple prelim $3.06 vs $2.60 Capital IQ Consensus Estimate; revs $74.6 bln vs $67.53 bln Capital IQ Consensus Estimate Skyworks beats by $0.07, beats on revs; guides Q2 EPS and rev above consensus (79.33 +2.03) Electronic Arts prelim $1.22 vs $0.92 Capital IQ Consensus Estimate; revs $1.43 bln vs $1.29 bln Capital IQ Consensus Estimate : Others are just seeing their earnings prospects improve, which happens often in healthcare especially, or in the airlines that are just starting to see the benefit of low jet fuel prices. PCYC announced that it sees Q4 IMBRUVICA revs of $185 mln; sees FY15 net product revs of ~$1 bln for IMBRUVICA, representing a 103% increase over the expected FY15 total. The point of my post is not to brag, although I must concede I am happy with one month's performance that could easily be a year. For investors, the lessons are important. Keep your portfolio as fresh as possible, as if you were starting with 100% cash. Avoid names where the earnings estimates are being cut and stay with names where the earnings outlook is improving, at an accelerating rate if possible. And don't overpay! Tomorrow, as our Open House continues, we will broaden our look with a halftime report of the first wave of earnings reports. We will look at who is surprising and why, with an eye toward finding the next big earnings and stock price winners of Q1.

My Portfolio Report Card

This portfolio is up 2.9% for the month,

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