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No. of Recommendations: 0
Jim,

I don't understand how this rising star portfolios work. I see that your investments have done outstandingly well and you are up about 2880 as of today, and that is reported about a 5% increase.

How come they don't show total allotted sums per portfolio? I think a bit more clarity would be better.

Also, what are the rules? Are you allowed to sell anything? And for how long does this list? Is this a competition? And is there a closing date?

Finally, can I nominate a new contestant?

Good luck!
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No. of Recommendations: 5
Hi huddaman,

Thanks for your comments and questions.

I see that your investments have done outstandingly well and you are up about 2880 as of today, and that is reported about a 5% increase.

I wish! :-) Actually, I'm up, as of this evening and according to http://www.fool.com/specials/risingstars/rising-stars-jim-mu..., $319.88. That's from the table of individual purchases gain/loss column. I've invested $2,562.54, so ROIC is 12.48%.

There's actually one more purchase, Textron, that was made Friday that hasn't shown up yet for about $375 and I'm up about $5 on that, so total gain is about $325 all told and total ROIC is about 11%. Not too shabby for 2-1/2 months! But, it's early days, still. :-P


and that is reported about a 5% increase.

That's for the portfolio as a whole, including cash, using the calculation for NAV as described at http://www.fool.com/investing/small-cap/2005/07/11/computing... and http://www.fool.com/investing/small-cap/2005/07/12/keep-trac.... The cash drag is pretty significant this close to the beginning. I showed the difference in looking at it just from investments (as if it was a newsletter scorecard) and a real live portfolio including cash in this summary article for the end of 2010: http://www.fool.com/investing/general/2011/01/06/how-these-m....

Calculating total portfolio returns uses the daily closing prices times the number of shares held plus cash and dividing by the number of units the portfolio consists of. That's the NAV and is just what a mutual fund does to calculate its value and returns. New infusions of cash buy extra units at the latest NAV, so that NAV does not change with more cash coming in each month. Return since inception is just the latest NAV divided by the beginning NAV, such as $10.00 per unit, a good starting spot. Check out those articles linked above for more details. The benchmark is the S&P 500 as measured by SPY, so that's dividend adjusted. Our NAVs include dividends paid, if any, so it's appropriate.

By the time the first quarter ends, I expect to have somewhere between $5,400 and $5,700 invested out of $9,000, so the cash drag will be under 50% by that point and will continue to go down over time.


Also, what are the rules? Are you allowed to sell anything? And for how long does this list? Is this a competition? And is there a closing date?

Sixteen of us were given $5,000 at the beginning of November and we receive an additional $1,000 at the beginning of each subsequent month for a year, for a total of $17,000. We are supposed to make at least one pick and invest at least $1,000 each month. (Actually, it's one large pot of money that's tracked internally as it is doled out to different sub-pots and each person makes their investment choices. The commissions are real low at $1 each, so we don't have much friction from that. Thank goodness, because my purchases are pretty small!)

The one per month rule is so that we feel the same pressure that our newsletter advisors feel. Plus, it gives those who are following along several new ideas each month. The $1,000 per month is a reasonable amount to put to work each month for a portfolio of this size.

We have a fairly open hand on what we can buy or sell. Prior to starting this, we each had to put together an investment proposal and present it to the company's CFO and the manager running the show. We had to describe what we would buy and why, how we would handle risk, that sort of thing. We also have quarterly reviews to see how we're doing. My first such review happens to be this coming Tuesday.

My philosophy was primarily this idea of MUE which I picked up from Michael Mauboussin, and I would handle risk primarily by position sizing, following something written by Zeke Ashton. I'm targeting 2%, 4%, and 6% of initial total capital (so about $340 = 2%) for the investments, making each one a 2% starting position and adding as I see fit (as I did with Transocean and will likely do for others in the not-too-distant future). This imposes a certain discipline on my investment decisions and, so far, it's been working pretty well.

Yes it's a competition to some extent. We're a pretty competitive bunch at this company, so me being #3 our of 16 is pretty gratifying, but I'm expecting to reach #1 by summer. :-)

It also gives the company a chance to see what and how we can do outside of the constraints of the newsletters we work for (almost everyone listed works directly for one or more newsletters). I don't know what the plans are for any "winners" but we certainly want good investors to lead our newsletters, for instance.

Most importantly, it allows us to build a public-facing track record and to build a following, so that if I'm (for instance) tapped to lead a new newsletter a few years down the road, people will know who I am and say they'd love to follow along, thanks to my track record.

Finally, it gives us more content for Fool.com and gives us practice at writing, both analytical pieces and buy or sell reports. We all have to write as part of our jobs (who do you think puts together the content for the newsletters and updates? -- everyone from David and Tom on down), so this practice is certainly a good thing.

As far as I know, there's no closing date and I expect to run mine as long as the company lets me.

By the way, these ports are on top of our normal job responsibilities, but there is a lot of (ahem) synergy between what we're doing with the ports and what we're doing for work. Plus, just the work involved in researching the picks (and the also-rans) makes us better analysts and investors, which is a plus for our day jobs and a win for both us and the company.


Finally, can I nominate a new contestant?

I'm not sure. If you're thinking of Tom E (TMF1000), he probably wouldn't qualify as he is not an in-house Fool and right now I believe this is limited to the in-house analysts. However, if you want to pursue this, drop me an email (via a reply) and I'll pass your message along to someone who could answer definitively, one way or the other.

Thanks for asking your questions and giving me a chance to explain a bit more what the RSP initiative is all about. If I missed something or something I wrote generates another question or five, speak up.

Cheers,
Jim
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Thank you Jim for explaining so clearly. No I was not going to nominate TomE. But hey, if he agreed, that would be awesome. He is probably already a star in his own right. If he is made the manager of the next million dollar portfolio, and the subscription fee is reasonable, I will surely subscribe. I don't need write-ups if he is the PM, just a service that send alerts before his every purchase/sale. And probably a discussion board.

I understand the process a lot better now. So you got 5k in Nov, 1k in Dec and 1k on 1/1/2011 totaling 7k. Without accounting for your latest unpublished purchase, you have invested 2562.51 out of 7000. My advice, don't underestimate the cash drag. This is probably a year when S&P 500 will ascend above 1400. Your individual picks rock, but overall portfolio allocation decision (64% cash) indicates you have not put the cash to good use, hence mistimed the market.

I bet when you and others decided to horde cash, you guys thought S&P500 will drop along with your watch list allowing you to more easily crush SPY. You are going to be held against the benchmark previously disclosed in the game which is SPY. If you have decided to hold cash for opportunistic buys, you have to live upto the consequences.

That said, you probably have the best chance of winning based on your accuracy so far and consistent out-performance on a per pick basis. But then, its too early to judge, good investments can pan out over mutliyear periods, not weeks. That 64% cash you have been hoarding might present you with opportunities you would not have had otherwise.

Rising star is a really nice concept, and I am thankful to TMF for starting it, and including someone of your caliber.

I'll let you know my nomination separately.

Good luck!
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My advice, don't underestimate the cash drag. This is probably a year when S&P 500 will ascend above 1400. Your individual picks rock, but overall portfolio allocation decision (64% cash) indicates you have not put the cash to good use, hence mistimed the market.

I bet when you and others decided to horde cash, you guys thought S&P500 will drop along with your watch list allowing you to more easily crush SPY. You are going to be held against the benchmark previously disclosed in the game which is SPY. If you have decided to hold cash for opportunistic buys, you have to live upto the consequences.


Hi huddaman,

Hmm, I must not have explained myself clearly enough or the mere fact that there's a fair amount of cash sitting around is giving the wrong impression.

I'm not consciously hoarding cash. I'm consciously moving into my positions in a slow and careful manner, 2% at a time. And, I only have so much time to devote to research for this port, anyway. So, there was no attempt, at least on my part, to try to time the market or any expectation that the market would drop making a cash position stronger. It's just the way it worked out for me, that's all.

Further, I personally don't care if I'm benchmarked against the S&P 500 or not. I'm going after absolute returns of 15% per year or better (which is why that's my hurdle discount rate in judging MUE status). On occasion, that will trail the S&P 500, but I certainly wouldn't complain. Because on other occasions, it would crush the S&P 500, if I apply the process consistently.

The benchmarking, the way it's set up, is my port, 60% cash or not, vs. a 100% investment in the SPY from day one. That may be industry standard, but it's not very realistic.

Cheers,
Jim
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The benchmarking, the way it's set up, is my port, 60% cash or not, vs. a 100% investment in the SPY from day one. That may be industry standard, but it's not very realistic.


The flipside of the argument would be, if the manager cannot beat the benchmark, why bother paying management fees, atleast in case of mutual funds but also in case of paid services at Motley Fool. Instead why not just index. Those fees can add up.

It may not apply here though, since rising star is completely free service. I personally always hold my self against a benchmark and stick to it. If I cannot beat it, then I have no business actively managing my own portfolio.

BTW, if your personal benchmark is hurdle rate of 15%, that's even bolder and demanding than crushing SPY over long term. It is possible that over next 3-5 years, SPY might come close to that return, but over long term, it won't. I like your confidence. Again, I am glad I can follow your picks here for free.

Keep up the good work! Thanks.
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Where can I look at the rising star portfolio..?

Thanks,
Suresh
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Where can I look at the rising star portfolio..?

Hi Suresh,

Here's the direct link to mine: http://www.fool.com/specials/risingstars/rising-stars-jim-mu... That has all the purchases and returns per purchase, overall portfolio performance, and links to the buy articles.

But more generally, you can go to http://risingstars.fool.com or from our home page (www.fool.com) scroll down to the five medium sized pictures that are near the bottom. Right now there's a clock and a pair of boxing gloves among them. There's a permanent link to the RSP main page there. The RSP page has links to all 16 portfolios as well as a listing of the top five performers, measured by total portfolio return since inception.

Cheers,
Jim
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Thanks Jim..This is a very interesting concept..
I'm a recent subscriber..and feel very happy and excited to be here..

Thanks,
Suresh
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