Music in the background in consideration of the passing of JJ Cale this weekend: JJ Cale and Eric Clapton’s The Road to Escondido. A favorite memory of them was at the first Crossroads festival in 2004 where they appeared together on a side stage to play Cale’s “After Midnight”. They disagreed on stage who would sing with Clapton as far back from the front of the stage as possible forcing Cale to take the lead and sing the lyrics he made famous.
The primary RMHI/OP ranking system
Many times you’ll read references to our proprietary ranking system so I thought it was due time to take a few moments this Sunday to explain how it work and its effectiveness.
Our ranking systems are really the engine that drives performance in all of our client portfolios. In our case, our ranking system is the result of approximately 40 factors which range from valuation, technical and earnings growth measurement working together to identify the potentially strongest stocks on one end of the spectrum and the ability to identify the weakest performers on the opposite end. Like any engine, periodically we’ll test the present results of the ranking system against historical back-testing to see if the ranking system remains effective.
All portfolios are re-ranked weekly and client holdings are adjusted to reflect any changes in the ranks to ensure all the holdings reflect the best opportunity for growth.
RMHI/OP ranking system results 1/1/1999 to 7/23/2013
Obviously you want to own the stocks that fall into the best performing bars on the right of the chart and ignore the rest.
In our portfolios (with the exception of our 5-stock portfolios) we only own stocks falling into the top four bars to the right side of the chart. Once a stock falls out of the top ranked bars its sold and replaced with a new stock which is usually in the top bar (yellow). As the chart shows the best chances for investment success are owning the stocks in the top bars to the right.
Portfolio changes for the week of July 29th:
I’m a subscriber to Decisionpoint.com and periodically read what Carl Swenlin has to say and his present comments suggest that a short/intermediate top in the stock market may be forming. Carl is not prone to fear mongering pronouncements and market trading volume has been declining while the market averages rise which is not a good combination.
So with that in mind and after re-ranking our holdings we’re selling off the stocks that have fallen below our acceptable levels on the ranking system but are only making a partial effort to replace the sold stocks with new ones. Our smaller 5-stock model has actually given several sell recommendations but no buys whatsoever, so in these portfolios we’ll hold cash until further buy recommendations emerge.
Stocks to be sold due to rank
Tower International
Columbus McKinnon
First Interstate Bancsystem
Farmers Capital Bank Corp
Trico Bancshares
Buys
Chase Corp.
Heritage Financial
All the best,
Brad Pappas