It's been another three weeks already. It's time to take a look at how my StockScouter portfolio experiment is doing. You don't have to look very hard or long at the chart on the right to know things have not been so good lately. I'm burning a lot of red pixels. Looks like there's been a bear in here. Three weeks ago they charged out of the gate looking like winners. Now, if this were real money, I'd be getting a little worried.

Today I'm taking my second look my hypothetical StockScouter portfolio. This is an experiment I'm running to track the progress of Jon Markman's most recent StockScouter portfolio of 10 stocks for the second half of 2007. These 10 stock picks were posted in MSN's Supermodels column in early July. The StockScouter stock picking system screened the universe of stocks and selected these 10 for outstanding performance for the second half of 2007. My experiment is intended to track how well these stocks are doing throughout the investment period.

Here's how the experiment works: I "funded" two hypothetical portfolios with approximately $100,000 in virtual cash apiece. In the first portfolio I purchased StockScouter's ten stock picks for the second half of 2007. I divided the cash equally among all securities to be purchased and bought round lots only. In my second portfolio I purchased $100,000 worth of S&P 500 Depository Receipts, SPY, also known as Spiders. My plan was to use this second portfolio as a benchmark against which the aggregate return of the StockScouter portfolio would be compared. For both portfolios I factored in $9.99 commissions per trade.

As you can tell, to date the StockScouter portfolio hasn't done too well. The portfolio of 10 stocks is down 8.5%. My initial $104,000 investment is worth a little under $96,000 as of yesterday's close. Ouch! That hurts. That's over $13,000 lost in the last three weeks. Sure, $5,000 of that was "only" paper gains, but $8,000 of that loss is my original investment.

On the other hand, SPY hasn't done all that well in the last three weeks either. My $107,000 benchmark portfolio is now only worth $100,000, a loss of 6.3%. StockScouter's ten stock choices have consistently outperformed the S&P 500 for the six years. Admittedly, we're only about 25% of the way into this experiment. The StockScouter screen picks stocks based on a 6 month investment horizon. In the remaining months there are plenty of opportunities for my StockScouter portfolio to recoup some losses and make up the 2.2% difference. We'll just have to watch and see how it goes.

These losses make for an interesting thought experiment. I admit I'm having a lot of trouble thinking what I'd do if this were real money. If I'd made these investments with my own money, would I stick it out and have faith in the StockScouter's ability to pick stocks? The magic of a stock picking system works two ways. When it's picking winners, why bother to question how it works? Just follow along blindly and make money. When it hands you losers, however, keeping the faith and following blindly is a completely different proposition altogether.

Previous posts in this series:
Tracking the StockScouter stock picking system
Tracking the StockScouter - 3 week progress report