A Canadian on Wall Street

The Star takes a look at a portfolio they base on John Dorfman’s Robot Portfolio, filled with stocks chosen using an automated stock-selection algorithm. Dorfman describes it thus:

The Robot Portfolio is a simple quantitative stock-picking model. I designed it to make the point that unpopular stocks are better investments than popular ones. It’s easier for unpopular stocks to exceed prevailing expectations.

The “Robot” starts with the universe of U.S. stocks with a market value of $500 million or more. It eliminates those companies whose debt is greater than stockholders’ equity, and also slices off those with negative earnings over the past four quarters.

From the approximately 1,000 stocks that remain, the Robot selects the 10 with the lowest price-earnings ratios (stock price divided by the past four quarters’ earnings).

The Star’s version contained Sino-Forest and gained from the pop it got into the close of the year apparently. The 2007 portfolio contains Norbord, one of Irwin Michaels of ABC Funds favoured stocks. Norbord is in the terribly sexy trade of making wood panel, a business which I believe Sino-Forest is also in, coincidentally. I’ve been eyeing Algoma Steel myself, but am still wary that the bulk of steel companies are forecasting declining steel demand in the upcoming year. The energy and mining trusts and stocks that form a major component of the portfolio have never really been that appealing to me — I don’t think I understand them that well, which is a shame I suppose as a Canadian investor. Likewise for Biovail, one of Canada’s larger pharmaceutical companies; aside from that misguided foray into Liponex, I’ve stayed pretty far from the biotech and drug sector, which is filled with lots of hoping and waiting as new drugs and technologies make it (or not) to market and finally, live or die years later. (Remember Hemosol? I had an acquaintance that proudly discussed his belief in his investment in the future of this blood replacement company and held on as it cratered. How about Adherex? The wife of a friend of mine did her Ph.D. working on the technology that was spun off into this company, and it looks like a losing proposition with the benefit of hindsight. Suddenly wood panelling is looking a lot more exciting.)