A portfolio of 8 stock picks from the edge

When I picked stocks for the 8 Stock Portfolio, I had initially short listed a group of 28 stocks. I eventually removed 20 stocks and decided to focus on a select group of eight. I wrote a series of posts about the 20 Stocks Left Behind explaining my rationale for eliminating the various names from consideration.

After the historic events of last week and the tumultuous movements of the markets, I thought that now would be a good time to revisit the 20 stocks left behind. Each of the 20 stocks were down more than 50% from their 52 week high when evaluated. Several were down more than 90%.

The table below shows each of the 20 stocks, the price on 8/1/2008 and the closing price from 9/19/2008.

Overall performance was a gain of 14.34%. (This compares to 17.71% gain for the 8 Stock Portfolio.)

13 out of 20 stocks were up (This compares to 5 out of 8.)

9 out of 20 stocks had gains of more than 10%. (This compares to 5 out of 8.)

5 out of 20 stocks had losses of more than 10% (This compares to 1 out of 8.)

Best performers were Standard Pacific with a gain of 112.73%, Caribou Coffee with a gain of 70.11%, and AmeriCredit with a gain of 39.11%. Worst performers were Carmike Cinemas with a loss of 39.69% and Jones Soda with a loss of 33.60%.

From the 8 Stock Portfolio the best performers were RH Donnelly with a gain of 74.15% and Chico’s with a gain of 37.82%. The worst performer was VMware with a loss of 14.70%.

Some takeaways from looking at the 20 stocks that I didn’t pick. First, it turns out that the beginning of August was a good time to be picking up beaten down stocks. Everyone has heard that you should make your stock picks from the 52 week highs list rather than the 52 week lows list. The market often defies axiomatic logic. Different circumstances call for different strategies.

Second, it makes sense to buy in a portfolio. Losses in excess of 30% were offset by other winners. In fact, after doing a quick calculation, if the worst performing stock in either the 8 Stock Portfolio or 20 Stocks Left Behind portfolio went all the way to zero, each portfolio would still be at an overall gain.

Third, two of the winning names were a housing and financial stock. I had intentionally avoided the sectors completely in the final portfolio. While big names like Lehman Brothers and AIG were taking heavy damage, some names that have already been steamrolled early in the cycle are bouncing back. I think it is still early in the game to draw any conclusions from this, but it is definitely surprising.

Full Disclosure: Long CHS, RHD, VMW at the time of writing.