Using SSR How many stocks should I use when constructing a portfolio? Why should I select equal numbers of stocks from each group and invest in equal amounts? How are stocks that are deleted replaced in the SSR portfolio? Do you have any advice as to when or how often one should rebalance their portfolio? I am a new subscriber to the SSR. Should I invest in all 36 stocks or only invest in stocks as they are added to the portfolio? Do you have any advice as to which broker I should use? Will the Stock Superstars Report be turned into a mutual fund? How will new stock selection strategies be integrated into the SSR portfolio? When purchasing stocks should I invest equal share amounts or equal dollar amounts? Should I use stops in my SSR portfolio? Why can't I invest in just one of the SSR groups? Where can I find a listing of all of the transactions for the actual SSR portfolio? Is the SSR strategy actually traded? What should I do with cash dividends I receive from my SSR stocks? What should I do with shares I receive from spinoffs? Is there a minimum amount of money you recommend investing in the SSR system?

How many stocks should I use when constructing a portfolio?    [ top ]

The more stocks you own, the greater your portfolio’s diversification and the lower the risk. Optimally, you should purchase all 36 of the stocks in the Superstars Portfolio. However, commission costs as a percentage of portfolio value will be higher when purchasing only a few shares of each stock. You should use a deep discount broker if you are managing your own portfolio. There is little reason to be paying more than $20 a transaction and, depending on your need for other services, you can get executions for much less than that. If you cannot own all 36 stocks in the SSR portfolio, then we recommend that you hold at least 16 stocks, with four from each group. Furthermore, you should invest equal dollar amounts in the individual stocks you purchase.

Why should I select equal numbers of stocks from each group and invest in equal amounts?    [ top ]

If you choose less than 36 stocks, it is imperative that you divide them as equally as possible among the four groups to be as efficiently diversified as possible. You should hold at least 16 stocks—four stocks from each group. Furthermore, you should invest equal dollar amounts in the individual stocks you purchase. This is essential if you want to achieve the maximum return with your acceptable level of risk. You can go to the RiskGrades link on this site and enter your portfolio, or anticipated portfolio, to determine its risk level and the effectiveness of your diversification. Buying odd lots of stock (less than 100 shares) is not the issue it once was; no additional transaction cost should arise from doing so.

How are stocks that are deleted replaced in the SSR portfolio?    [ top ]

Once a month, those stocks that were deleted during the previous month are replaced with new ones to bring the SSR portfolio back to 36 stocks. Within the four groups, however, the same number of stocks that were deleted are not necessarily added to the portfolio. In other words, just because two stocks were deleted from one group does not mean that two replacements are added to the same group. Portfolio additions are made on a rotating basis from the four groups. This allows better-performing strategies to increase their weight for subscribers holding the complete portfolio. If four stocks need to be replaced in a month, then a new stock will be added to each of the four groups.

What this means is that, over time, there may be one group that has fewer stocks than the other groups. The intended result is to weed out weaker (underperforming) groups and let better-performing groups dominate. We are constantly monitoring alternative selection strategies and, when appropriate, weaker-performing strategies will be replaced with better-performing strategies. When this happens, we alert subscribers to the change in the monthly SSR newsletter. However, stocks that are still held in an underperforming group will not automatically be deleted. Stocks will only be deleted if they meet the SSR requirements for removal.

Do you have any advice as to when or how often one should rebalance their portfolio?    [ top ]

We do not advocate active rebalancing of SSR holdings—selling off partial positions of holdings that have grown or adding to positions that have underperformed. However, when buying stocks to replace those that have been deleted from your SSR portfolio, we do recommend that you invest amounts that are proportionate to the average holding size of your overall SSR portfolio.

Here is a simple way to determine the approximate amount to invest when buying stocks to replace those that have been deleted from your SSR portfolio.

Begin by calculating the average position size (in dollars) for each of the stocks in your SSR portfolio. This is merely the process of adding together the market value of each of your SSR stocks and dividing the total by the number of SSR companies you own. This average is approximately the amount you should try to invest in each of the new SSR stocks. For some months, investing this amount will leave you with cash left over. This will happen if you have deleted a stock for a gain. If you are not averse to holding cash, this can be used in those months where you may have deleted a stock for a loss. Otherwise, invest the cash you have on hand equally in the stocks you are buying.

If you find that you do not have enough cash on hand to invest the average holding amount and you are not willing to add new money to your portfolio, than any cash available should be invested equally among the new stocks.

I am a new subscriber to the SSR. Should I invest in all 36 stocks or only invest in stocks as they are added to the portfolio?    [ top ]

No matter when you subscribe to the SSR, we recommend that you purchase the 36 stocks comprising the SSR portfolio over a relatively short period of time. If you choose to own less than 36 stocks, you should purchase at least 16 of the SSR stocks, again over a relatively short period of time, with an equal number of stocks from each of the four groups. No matter how many stocks you purchase for your SSR portfolio, you should invest equal dollar amounts in each individual stock. If you are concerned about purchasing stocks that have been in the portfolio for some time and are purchasing less than 36 stocks, you may wish to construct your SSR portfolio from stocks that have been added to the portfolio most recently. However, you may wish to avoid a recently added stock that has a relative strength value well below others in the group.

Do you have any advice as to which broker I should use?    [ top ]

We do not favor one broker over another. However, AAII publishes an annual Discount Broker Survey that lists broker commissions, costs and the services they provide. AAII members can access this survey by clicking [ here ].

Will the Stock Superstars Report be turned into a mutual fund?    [ top ]

The costs and resources associated with starting and running a mutual fund prohibit the SSR from becoming a mutual fund. Furthermore, money management is outside the focus of AAII’s research and educational mission.

How will new stock selection strategies be integrated into the SSR portfolio?    [ top ]

We are constantly monitoring the performance and interaction of numerous stock selection strategies. It is our policy to replace an existing SSR strategy with a new strategy when warranted by its risk-reward relationship with the overall SSR portfolio. When introducing a new strategy, it is gradually shifted into the SSR portfolio through the usual monthly portfolio additions. There will continue to be four groups and the old strategy would be replaced with a new strategy with similar characteristics, but a better risk-reward profile. Stocks from the previous strategy are identified, but they should be held until deletion from the portfolio. We are trying to take a longer-term perspective and avoid excessive turnover, transaction costs and taxes.

When purchasing stocks should I invest equal share amounts or equal dollar amounts?    [ top ]

You should try to invest equal dollar amounts within each group and then also equal dollar amounts in each stock in the group. The key is equal initial dollar amounts, not number of shares, in each stock. Purchasing odd lots of shares (less than 100 shares) is not the cost issue it once was.

Should I use stops in my SSR portfolio?    [ top ]

Portfolio deletions for the SSR portfolio are issued when a stock shows weak relative or absolute performance, or exhibits changing financial conditions contrary to the selection approach. While the SSR portfolio does not make use of stops, you may want to implement your own stop points in order to lock in some level of profits. However, the point at which to take a profit is very much a subjective one. Also, be aware that stop orders can be dangerous on many stocks. On a slow trading day, traders can run a stock up or down to hit stops and then let the price return to “normal” levels. Also, there is no proven level that is best to offer price protection; it depends on the volatility of each stock. Ultimately, you sell to avoid real disasters—Enron, Adelphia, etc.—but selling too quickly can lead to whipsaw losses that can add up over time.

Whether you are buying or selling, be cautious about trading early, particularly at the open, on the first day after a portfolio change. If you are a buyer, give the sellers time to get involved in the market. Depending on market action, you may wish to try to buy on weak days. Also, it is always safer to employ limit orders. The stocks added to the portfolio are reasonably liquid and additions to the portfolio alone should not affect the price significantly for any extended period of time. If you are buying a large number of shares, you might buy some one day and some another. While we generally suggest acting on portfolio additions and deletions within the week, you can wait longer if you feel the stock is moving in your favor.

Why can't I invest in just one of the SSR groups?     [ top ]

The four SSR groups represent four separate approaches that have shown strong performance during both bear and bull markets. We are continually monitoring the success of a wide range of approaches and will adjust and replace a given SSR strategy if its risk-adjusted performance starts to lag the market. We don’t just use the best single strategy because market conditions may change quickly and we do not want to leave the whole portfolio vulnerable to such a market change. The risk of the overall portfolio is controlled and reduced through the diversification of investing in each of the four groups. We have no way to predict how the strategies will perform going forward, but we select approaches with a good historical track record.

Where can I find a listing of all of the transactions for the actual SSR portfolio?     [ top ]

A comprehensive list of transactions for the actual SSR portfolio—including trades, dividends, interest income, etc.—is presented here on the site. The transaction history can be accessed by clicking on the transaction history link located at the bottom of the Performance page on the Web site. The list of transactions is updated on a weekly basis.

Is the SSR strategy actually traded?    [ top ]

An actual portfolio was started at the beginning of 2002 that follows the SSR strategy from the perspective of a subscriber. Trades are not placed until after portfolio alerts have been issued to our subscribers via E-mail, Web, and telephone hotline. Actual discount broker commissions and fees are incurred and are figured into performance calculations. A comprehensive transaction record of the portfolio is available in the Performance area of this site; click on the transaction history link at the bottom of the page.

What should I do with cash dividends I receive from my SSR stocks?    [ top ]

We do not reinvest cash dividends paid by stocks held in our SSR tracking portfolio. Cash income is invested in new SSR purchases. What you choose to do with your cash dividends, however, is entirely up to you. One thing to consider, however, is that if your account is taxable and you choose to reinvest your cash dividends, you will need to keep track of the cost basis of these additional investments.

What should I do with shares I receive from spinoffs?    [ top ]

Occasionally, the companies in your SSR portfolio will spin off operations, resulting in you receiving shares of the new company that is being spun off. It is the policy of SSR to delete these shares and hold the proceeds in cash to use for future purchases.

Is there a minimum amount of money you recommend investing in the SSR system?    [ top ]

We recommend that you hold at least 16 SSR stocks, with four from each group. Furthermore, you should invest equal dollar amounts in the individual stocks you purchase. The more money you invest in the SSR system, the lower the transaction costs per share or per investment. Keep in mind that commission costs will be higher when purchasing only a few shares of each stock. You should use a deep discount broker if you are managing your own portfolio. There is little reason to be paying more than $20 a transaction and, depending on your need for other services, you may be able to get executions for less than that. When deciding how much money to commit to your SSR portfolio, keep in mind that buying stocks in small value amounts will lead to higher per-dollar transactions costs that will, over time, impact your performance.