Rate of Return: 24.9%
Growth is a two-edged sword. Growth stocks normally outpace the broad market, resulting in above-average gains. But when stocks are falling, growth stocks tend to display higher volatility and fall farther and faster than their value counterparts.
That’s why I have consistently warned that my model Growth Portfolio is risky and should only be tracked by investors who can live comfortably with a high risk/high return scenario.
Our Growth Portfolio uses that approach and it’s worked. It has generated an average compound growth rate of about 25% a year since it was launched in August 2012.
There are two main reasons for these astonishingly high returns. First, it’s a small portfolio – only eight positions. That means we are making big bets when we select a security. If it performs well, it makes a huge impact on our profits. If it goes sour, the loss can be substantial.
The second catalyst is momentum. We look for stocks that investors are driving up, despite what may be high p/e ratios and analysts’ cautions. I have observed over the years that when stocks develop a strong trend pattern, they tend to overshoot, either up or down. As a result, the philosophy of this portfolio is to dump the losers, ride the winners. It has paid off.
The Growth Portfolio was launched in August 2012. It had an initial value of $10,000 and a target annual growth rate of 12%. The portfolio has 100% exposure to the equity markets.
Here are the securities that make up the current portfolio, with an update on how they have performed since our last review in February. Prices are as of the close on Aug. 18.