Portfolio Update
January 1, 2000 - September 30, 2009
While 2008 was the worst stock picking year since we began publishing in 1981 we are still considerably ahead of the S&P 500 since 2000. We are now back on track and putting more space between our portfolio and the S&P 500. A $1,000 in our hypothetical Model Portfolio is now worth $2,884 compared to a like amount invested in the S&P 500 which has increased to only 1,057. We fully expect this year to continue to bounce back for us, with gold mining shares leading the way. The economics for gold mining are now the best they have been in many years. We have recorded a gain of well over 50% so far this year.
Our June 30, 2009 Model Portfolio
Our Low Budget/Low Maintenance Model Portfolio
Year 2000 marked the beginning of a secular bear market in stocks that
we think will last 15 to 20 years. We constructed our Model
Portfolio on January 31, 2000, because we believed a secular bear
market in stocks was born. Because gold and gold stocks are negatively
correlated with the market in general, gold and gold shares are the
backbone of our Model Portfolio.
How
Are Returns for Our Model Portfolio Calculated?
Our Model Portfolio is a hypothetical portfolio. That is to say, we do not run
an actual portfolio exactly like the one we use as our Model Portfolio. In its
construction, we apply the following methods and assumptions:
Various sector allocations are chosen including producing gold and silver stocks,
gold and silver exploration stocks, inflation hedge stocks, such as energy (including
uranium mining stocks) and base metal mining stocks, as well as “essential
technology” stocks. (We define “essential technology” as those
companies that can reduce the cost of producing the most basic life-sustaining
products, such as water, energy, and food.)
At the start of each year, a portfolio allocation is made for each of these sectors
as well as an equity hedge sector (the Prudent Bear Fund–BEARX) and a bond
hedge sector (the Rydex Juno Fund–RYJUX).
It is assumed that each stock within each sector is equally weighted at the start
of each new year.
The total gain for a given sector is simply the sum of all the gains and losses,
divided by the number of stocks in that sector. The percentage of gains or losses
of each sector is then multiplied by its respective weighting, and the sum of
the various sector performances is the Model Portfolio’s performance.
Gains are not annualized. So, for example, a stock that was recommended on December
1 and gained 100% by the end of the year enhances returns no more than a stock
that gained 100% over 12 months. The Model Portfolio’s gain or loss for
each year is simply the total of gains for each sector, times the respective
weighting of each sector.