Title says it all. The guru screens are updated daily presumably as new instruments fit the rules and existing ones don't. How, then, is it possible to use such a screen?
E.g., the "net net" screen is explained to be:
Updated daily
and
Rebalanced quarterly.
Would one update a real portfolio as often as the (possibly daily) updates allow, or would one just update quarterly?
/confused.
Octo, no - you'd be mad to. The transaction costs would kill your returns if you were trading daily.
Theres is a difference between the tracked portfolio and the daily candidate stocks. The tracked portfolio only rebalances quarterly. The daily published candidates represent the current opportunity set. How that opportunity set is to be used is a personal decision... one that comes down to portfolio size, tax constraints, risk appetite, goals, individual stock liquidity and so on. These are not things that we advise on - how these screens are to be used are a very personal decision.
For a portfolio like the net-nets... there can be massive bid-ask spreads. Some stocks are so illiquid the bid-ask spread can be 10% or even more. Trading a stock like that 10 days in a row would leave you with a huge loss.
Joel Greenblatt, author of "The Little Book that Beats the Market" advises rebalancing annually for most private investors. It's a good benchmark as it keeps costs low and allows less liquid value stocks time to revert valuations. For larger, more tax efficient accounts investing in more liquid stocks, the rebalancing can be far more frequent - quarterly or even more frequent.
This is a helpful cost spreadsheet - http://www.stockopedia.com/content/when-does-it-pa...
For further reading - we are working on a portfolio ebook, but in the meantime dig through some archives here.
http://www.stockopedia.com/columns/portfolio-manag...
Also read these
http://help.stockopedia.com/knowledgebase/articles...
http://help.stockopedia.com/knowledgebase/articles...
Edward, thank you so much. This is indeed very clarifying for me.
Based on your notes, could I infer that "daily candidate stocks" are a way to start a similarly conceived portfolio on any given date? In other words, if I don't want to wait for the next quarterly rebalancing, I could start a portfolio using, at my discretion, the stocks that are currently matching the ruleset?
Thanks again for your detailed and helpful reply.
