Revisting Your ABC's

Are you familiar with the alphabet portfolio? In May 2008, I looked at 10 stocks whose trading symbols had just one letter of the alphabet. Under the letter A there were two stocks, Agilent Technologies (NYSE:A) and Alcoa (NYSE:AA). The portfolio was complete by the letter D. Looking back three years to 2005, I saw that the improvised portfolio's average annual return in that 36-month period was 13.8%, 720 basis points better than the S&P 500. However, as I look back on my calculations, I have reason to doubt the veracity of my numbers. Therefore, in an effort to set the record straight, I'll revisit my ABCs. (For a look at the original article, see Invest In Your ABCs)

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The Entire Alphabet
As I make my way from A to Z, I see that 39 stocks with market caps above $50 million that possess just one letter in their trading symbols. Of the 10 I covered in 2008, eight still qualify under these criteria. SCOLR Pharma (NYSE:DDD) is out because its market cap - $23.4 million - is too small and in 2009, CircuitCity went to retail heaven. Otherwise, it's pretty much intact. What I'd like to do is present two portfolios and their returns since May 27, 2005. The first are the original eight (setting the record straight) and the second are any of the 39 that were trading five years ago. After a quick run through, it seems 28 stocks meet this criterion.

Eight-Stock Portfolio - May 27, 2005 to November 10, 2010

Company	Total Return
Agilent Technologies Inc. (NYSE:A)	56.5%
Alcoa Inc. (NYSE:AA)	-43.1%
Barnes Group Inc. (NYSE:B)	45.1%
Blackboard Inc. (NASDAQ:BBBB)	111.2%
Citigroup Inc. (NYSE:C)	-89.0%
Calgon Carbon Corp. (NYSE:CCC)	63.7%
Dominion Resources Inc. (NYSE:D)	49.0%
DuPont (NYSE:DD)	25.7%
8-Stock Portfolio Overall Return	12.1%
S&P 500	1.7%
DJ Industrial Average	7.7%

Eight Stocks
As I suspected, the remaining eight stocks performed admirably over the past five-and-a-half years, beating the Dow by 440 basis points and the S&P 500 by double-digits. Unfortunately, when you factor in the bankruptcy of CircuitCity, the collapse of SCOLR Pharma and Citigroup's stock prices, you'd likely have seen returns just a bit better than the S&P 500 and worse than the Dow would have. That's not very encouraging. I was expecting great things from my ABCs. Perhaps the 28-stock portfolio will save the day. In an effort to save space, the table below shows the four best and worst performing stocks in the portfolio, along with the overall returns.

28-Stock Portfolio - May 27, 2005 to November 10, 2010

Winners	Total Return
Goldcorp (NYSE:GG)	260.4%
Qwest (NYSE:Q)	125.0%
Blackboard Inc. (NASDAQ:BBBB)	111.2%
National Retail Properties (NYSE:NNN)	102.2%
Losers	Total Return
Citigroup Inc. (NYSE:C)	(89.0%)
Sprint Nextel (NYSE:S)	(81.0%)
Alcoa Inc. (NYSE:AA)	(43.1%)
Macy\'s (NYSE:M)	(19.6%)
28-Stock Portfolio Overall Return	23.9%
S&P 500	1.7%
DJ Industrial Average	7.7%

Faith Restored
Believe it or not, the four losers from the table above were the only stocks of the 28 to experience negative total returns over almost six years of difficult economic conditions. I challenge anyone to produce better returns from a similarly random group of companies. I'm sure it can be done, but it would take some work. In the past, I've written about the ING Corporate Leaders Trust, a passive fund that bought 100 shares of 30 leading companies in 1935 and held them forever, adding 100 shares of each remaining stock whenever the fund had the cash to do so. Its returns have been better than most. Investment managers could do something similar with the 28 stocks above, as well as the 11 that weren't included in the portfolio, because they haven't traded for the entire period. What you'd get is a 39-stock portfolio with plenty of income and diversification at a very low cost.

Bottom Line
The financial world can complicate many things - even something as simple as the ABCs. If this doesn't prove investing is complex, I don't know what will. (For related reading, take a look at 5 Tips For Diversifying Your Portfolio.)

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