Portfolio weights for 2Q15

My process remains the same. A whole lotta data massaging.

• Get recommendations from Agora's Focus list.
• Get historical data for the stocks from Google.
• Calculate correlations in Excel.
• Add dividends from Yahoo! Finance.
• Put expected returns and correlations into Matlab.
• Publish the weights here.

Symbol	Name	Recommender	Newsletter	Weight
SPX	Market			14.50%
WHOSX	Wasatch-Hoisington U.S. Treasury Fund	Jim Rickards	Strategic Intelligence	11.23%
GG	GoldCorp	Byron King	Outstanding Investments, Real Wealth Trader and Military-Tech Alert	19.06%
RTN	Raytheon	Byron King	Outstanding Investments, Real Wealth Trader and Military-Tech Alert	8.85%
BX	Blackstone Group LP	Zach Scheidt	Lifetime Income Report	0.00%
AIG.WS	AIG Warrants (AIGWS). FAQ at http://www.aig.com/Warrant-FAQ_3171_438029.html	Chris Mayer	Capital & Crisis	8.82%
AAWW	Atlas Air Worldwide Holdings	Jonas Elmerraji	Penny Stock Fortunes, STORM Signals	3.38%
GILD	Gilead Sciences	Rick Pearson	Agora Financial’s Catalyst Trader	10.20%
SGYP	Synergy Pharmaceuticals	Ray Blanco	Technology Profits Confidential	18.05%
ONCE	Spark	Stephen Petranek	Breakthrough Technology Alert	5.92%

I ignore the S&P weight, as I usually have something that I want to keep in the portfolio. 

I'm a little surprised the Blackstone Group got 0% weighting. 

I'll try to get these into a Fidelity basket next week.

Portfolio performance for 1Q15

Let's take a look at how the portfolio did last quarter.

symbol	name	recommender	weight	gain
fnma	Fannie Mae	Chris Mayer	0.00%	0%
fmcc	Freddie Mac	Chris Mayer	14.04%	16.61%
aveo	Aveo Therapeutics	Paul Mampilly	14.99%	69.48%
cry	CryoLife	Rick Pearson	5.56%	-1.73%
kite	Kite Pharma	Stephen Petranek	8.09%	-13.68%
swir	Sierra Wireless	Ray Blanco	3.53%	-0.53%
atml	Atmel	Ray Blanco	6.10%	-0.71%
infn	Infinera	Ray Blanco	5.38%	21.28%
atnm	Actinium Pharma	Ray Blanco	10.58%	-47.24%
gsvc	GSV Capital	Jonas Elmerraji	8.04%	7.61%
ozm	Och-Ziff Cap Management	Zach Scheidt	6.89%	12.70%

Remember than Fannie and Freddie track each other very closely, so there's no need to have both in the portfolio.

Of the 10 stocks, 4 were unchanged, 1 was down 47%, 1 was down 14%, 1 was up 7%, 3 were up in the double digits.

The portfolio underwent an 11.9% gain for the quarter.

Here's a helpful graph.

Portfolio weight vs. gain

The scatter plot shows a positive slope, meaning that the stocks with heavier weights performed better.

4Q14 portfolio performance

Here's my 4Q14 portfolio performance. I'm going to repeat the algorithm as described in the last post.

Symbol	Description	Orig weight	Total Gain/Loss Percent
AKG	ASANKO GOLD INC COM ISIN #CA04341Y1051 SEDOL #B7Y5P59	10.97%	-17.42%
CMRX	CHIMERIX INC COM	4.64%	27.45%
CRY	CRYOLIFE INC	7.52%	14.52%
EVERPRA	EVERBANK FINL CORP DEP SHS REPSTG 6.75% 12/31/2049 PFD ISIN	7.99%	0.44%
ICON	ICONIX BRAND GROUP INC	8.61%	-7.56%
INFI	INFINITY PHARMACEUTICALS INC COM ISIN #US45665G3039 SEDOL #B	5.18%	11.94%
NLNK	NEWLINK GENETICS CORP COM ISIN #US6515111077 SEDOL #B4LHRV7	8.90%	103.82%
RYAM	RAYONIER ADVANCED MATERIALS INC COM NPV	8.33%	-28.14%
SE	SPECTRA ENERGY CORP COM	8.62%	-10.25%
SNMX	SENOMYX INC	11.72%	-23.99%
SRPT	SAREPTA THERAPEUTICS INC COM	3.86%	-38.46%

There were some fairly diverse results, including one stock doubling (up 103.8%) and another down by 38.5%. Overall, the portfolio was up a weighted 2.32%.

Portfolio allocation for 1Q15

Agora came out with their Focus list for 1Q15. I ran it through the Google drive / Excel / Matlab process described in the 30Dec14 blog entitled "Modern Portfolio Theory and the Regular Guy's portfolio."

They recommended 11 stocks again. Here are the weights I came up with:

Ticker    weight    name
SPX      16.82%    standard & Poor
fnma      0.00%    Fannie Mae
fmcc     14.04%    Freddie Mac
aveo     14.99%    AVEO Pharmaceutic
cry       5.56%    CryoLife, Inc. Co
kite      8.09%    Kite Pharma, Inc.
swir      3.53%    Sierra Wireless
atml      6.10%    Atmel Corporation
infn      5.38%    Infinera Corporat
atnm     10.58%    Actinium Pharmace
gsvc      8.04%    GSV Capital Corp
ozm       6.89%    Och-Ziff Capital

Because Fannie Mae and Freddie Mac have a correlation of .98, it chose Freddie and disregarded Fannie. One is a proxy for the other, and there is no need to have both. (Note that a correlation of 1.0 means that you're getting the same thing twice; they are perfectly correlated.)

As I did before, I'll probably drop the S&P index and spread the weight among the others.

Modern Portfolio Theory and a regular guy's portfolio

I took a course at UNCC called Statistical Techniques in Finance. There was enough math to make strong men weep, but there was a gem of a section about Modern Portfolio Theory (MPT). A quick search on MPT will tell you that Harry Markowitz got a Nobel Prize for the theory. 

Here's a quote from Wikipedia about MPT:

The fundamental concept behind MPT is that the assets in an investment portfolio should not be selected individually, each on its own merits. Rather, it is important to consider how each asset changes in price relative to how every other asset in the portfolio changes in price.

So I started from a list of assets from Agora Financial (their Focus stocks for 4Q14). I normally have a dilemma in trying to figure out how to buy these stocks: Fixed dollars of each? Fixed percentage of each? Look for the best story? The lowest risk? A high dividend? 

The list, usually about a dozen, is picked by all different money managers with quite different outlooks. By design, some are high-yield stocks, some are pharmaceuticals, some are military, some are undervalued. 

Instead of picking and choosing, I let the math do the work for me. I had Google Finance create a spreadsheet that retrieve the past 520 trading days, had the market return (SPX) as one of the stocks, and then had Excel line up the prices so that they were all the same date. 

Then I ran the correlation function in Excel, which returns a number between 1.0 (perfect correlation) and -1.0 (inversely correlated). In my Focus set, the maximum correlation was 0.27 and the minimum was -0.197.

MPT says that risky, uncorrelated stocks will give you a better return with a lower proportional risk than unrisky, correlated stocks. (By the way, when I say risk, I am referring to the square of the Standard Deviation of the return.)

Then I took the correlations and their log returns and tossed the numbers into Matlab. The program I ran did some optimization of risk to return, using linear programming (a branch of operations research). 

Anyway, here is what Matlab said the optimal weighting would be.

        Ticker      Original weight     name      
        SPX         13.66%              Standard & Poor   
        SE           8.62%              Spectra Energy    
        ICON         8.61%              Iconix    
        RYAM         8.33%              Rayonier      
        AKG         10.97%              Asanko Gold   
        SNMX        11.72%              Senomyx   
        EVER-A       7.99%              Everbank      
        INFI         5.18%              Infinity Pharma   
        NLNK         8.90%              NewLink Genetics      
        SRPT         3.86%              Serepta Therapeutics      
        CRY          7.52%              Cryolife      
        CMRX         4.64%              Chimerix       

The results were surprisingly good.