I happened yesterday to be looking down the list of MF SA recommendations and happened to notice that back in 2002, David recommended Disney. (As it was well more than 30 days ago…I guess I’m allowed to mention the name of the stock). It was a great recommendation and is now up 5316%. In fact he recommended it again in 2002 (two of his five recommendations for the year), twice more in 2003 (out of another five recommendations) again in 2004, and a final sixth time at the bottom of the great recession in Dec 2008. They all did great.

If we think of this as a portfolio, and each of the six recommendations as a $1 investment (for simplicity), here’s what they are worth now:

1st rec of $1 – up 5316% - now worth $54.20

2nd rec of $1 – up 3271% - now worth $33.70

3rd rec of $1 – up 933% - now worth $10.30

4th rec of $1 – up 709% - now worth $8.10

5th rec of $1 – up 1246% - now worth $13.50

6th rec of $1 – up $543% - now worth $6.40

The whole six recommendations, which cost $6, are now worth $126.20 (an average of $21 each, up 2000% each on average).

How many recommendations did David make in total. I counted them twice and got 100 and 101. Let’s use 100 for simplicity. It won’t change anything if it was 101. His portfolio is up 257% so the way I figure it, his 100 total $1 recommendations are now worth $357, of which $126.20, or 35.4% is Disney. The other 94 recommendations make up $231 or 64.6% (or about two-thirds of a percent each). What’s wrong with this picture?

Well, any new recommendation is only worth $1, and Disney is worth $126, so new recommendation movements up or down influence the David’s Portfolio gain infinitesimally. It’s all about Disney and some other purchases that were made in 2002 to 2004. (Amazon, Activision, Priceline and Netflix) that now make up large parts of the portfolio.

I must be making some error here. Perhaps it’s in this assumption *His portfolio is up 257% so the way I figure it, his 100 total $1 recommendations are now worth $357*. Maybe they are averaging something instead, but it doesn’t make sense.

But even if this was wrong, the following statement seems correct *Well, any new recommendation is only worth $1, and Disney is worth $126, so new recommendation movements up or down influence the David’s Portfolio gain infinitesimally. It’s all about Disney and some other purchases that were made in 2002 to 2004.*

So what does that mean for someone who joined after 2004? That since 2004, things haven’t gone nearly as well? That David’s high percentage is a reflection of Disney’s rise from $1.94 to $105.00?

I’d welcome other points of view, as I’m sure that, while part of what I’ve figured seems unquestionably correct, other parts must be wrong.

Puzzled,

Saul