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The Shareswatch Random Portfolio: 1st Anniversary

October 25th, 2009 · Greg Atkinson · 2 Comments

One year ago I put together a fictional portfolio of stocks by simply using a random number generator and a list of shares that makes up the S&P/ASX 200 Index. Now 12 months later it is time to look at how these stocks have performed and see if they can tell us anything about the overall state of the Australian stock market.

Back in October 2008 there were plenty of market commentators warning of a global depression and therefore anyone who had a positive outlook on stocks was in a minority. As regular readers of this blog will know I was in that small group of optimistic stock market investors and decided to put together 10 randomly selected stocks so that in the years ahead, I could hopefully prove my point that although the global financial crisis was a severe economic correction, it would not result in the collapse of the capitalist system.

The Sharewatch Random Portfolio was not put together when stocks were bottoming out in March 2009 and actually the ASX 200 kept falling for around the first 5 months of the portfolio’s existence. The reason I put the portfolio together in October 2008 was because I believed that just after the Lehman Brothers failure we had reached (or almost reached) the point of maximum pessimism. Therefore I figured it was good time to start buying stocks since the market had already sunk lower than a typical bear market correction and may shares looked over-sold.

My expectation back in October 2008 was that after 12 months the Random Portfolio would be in the black and if it had an unrealised gain of around 10% then that would justify the logic behind the reason for setting it up.

But as we can see from the table below, the portfolio has far exceeded my expectations and in just 12 months has racked up over $26k in unrealised profits or provided an annual return of 26.75%. Over the same period the S&P/ASX 200 has risen by 25.58%.

Shareswatch Random Portfolio October 2009

Remember this portfolio is not actively managed and the stocks were not selected for any reason apart from the fact there were within the ASX 200 group of shares traded on the Australian Securities Exchange. I wonder how many super funds or actively managed funds have outperformed this random portfolio or how many highly paid fund managers were able to match (or better) the performance of this group of randomly selected stocks?

Since the Random Portfolio has basically performed pretty much the same as the ASX 200 if we look at a chart of the ASX 200 Index over the last year we can get a pretty good idea of how the Random Portfolio has fared.


S&P/ASX 200 Index Chart over 12 months

sp-asx-200-index-12-month-chart-oct-09

As we can see from the chart above the Australia stock market continued to head down in late 2008 and early 2009 but since reaching a bottom in March 2008 it has recovered strongly. The same can be said for the Random Portfolio.

The stand-out performers over the last year have been:

CCF – Challenger Financial Service Group. This stock has now doubled in value and is a good example of how a stock that is oversold due to panic selling bounces back fairly quickly after the panic subsides.

RIV – Riversdale Mining has risen along with most other mining stocks within the ASX 200 as investors decided that the capitalist system would not collapse and that the world economy would still need commodities in the foreseeable future.

PTM – Platinum Asset Management has provided the portfolio an unrealised gain of just over 60% and was another stock that with advantage of hindsight we can see was oversold. PTM was a stock that I was seriously thinking of buying last year but I decided against it because I did not want to increase my exposure to financial stocks. So it looks a random number generator at this stage may be putting my stock selection methods to shame!

MND – Monadelphous Group is a company that provides engineering services to the resource sector and so it’s price has recovered as confidence that the global economy is on the mend increases and the outlook for mining companies improves.

But the portfolio still has two stocks, MacMahon Holdings and Duet Group ,that are still in the red with the later still struggling to break above the 52 week low it hit in March 2009.

However what needs to be remembered is that overall the ASX 200 is still well below the highs of 2007 and therefore many stock portfolios would still have taken a battering over the last few years even if some very well timed stock purchases were made late last year or early this year.

Overall I tend not to read too much into the performance of this fictional portfolio of stocks. All it suggests to me is that stocks have bounced off their multi-year lows as they always do, but this does not mean stock prices will continue to rise. Also the Australian stock market (like our economy) is not very broad and so if mining and financial stocks rebound, so will the All Ords/ASX 200.

Since mining stocks and banks etc. were heavily sold during the stock market correction of 2008-2009 it was almost inevitable that they would lead the market back up again and at some point recover from oversold levels.

The next 12 months will be interesting and if the global economy continues to shows signs of recovery then the Random Portfolio might contain some very healthy unrealised gains when the second anniversary comes around.

Please note this Random Portfolio is NOT meant as an endorsement or recommendation of any of the stocks contained within it.

The Shareswatch Random Portfolio is a random selection of stocks from the ASX 200 range of companies. For further details regarding how it was constructed please see: The Random Portfolio

The current stocks prices of the companies on the portfolio can be viewed here: Stock market quotes and stock prices


2 responses so far ↓

  • 1 Ben // Oct 26, 2009 at 7:57 pm

    This proves that selecting stocks randomly has as much chance of beating the index that a managed fund does. The thing is there is nil management fee with this method so you are ahead from day 1.

  • 2 Greg Atkinson // Oct 26, 2009 at 8:21 pm

    Ben it is sure interesting to watch how this group of stocks performs. As you said, there are no ongoing management fees so thus far the Random Portfolio is doing pretty well. I only wish now I had actually put some money into the same stocks myself!

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