The Old Chain Saw

I wrote a post on Dobermanns of the Dow  looking at a particular screen of the universe of DJIA stocks.  The screen uses Return on Equity and Free Cash Flow and some winnowing criteria to knock out 20 of the stocks and leave you with the “best”.   It’s a value play in that the screen is designed to buy low and sell high, but ROE and FCF allow for using quality and not just cheapness as the criteria.  Being a risk adjusted kind of guy I added some bonds for non correlation and put the picks on the efficient frontier.  The result was this:

 A list of 7 DJIA  stocks and a Bond in AA ratios that place it on the Efficient Frontier.  I decided to see what old Mr Monte Carlo had to say about this portfolio, so I stuck the stocks and the bond in the blender and pressed high:


9978 times out of 10,000 the portfolio succeeded over 30 years.  The WR was 4% at normal historic inflation and no SORR stress

I stressed with the first 3 years being the worst 3 years of return.  This would be like retiring in Dec 2007 kind of scenario still with 4% withdrawal and historic inflation

The portfolio survives 9851 times out of 10,000 for 30 years at 4% WR with terrible SORR. 

Here is 5 years SORR worst case stress:

We still survive 9 out of 10 times (9245/10,000) at 4% WR.  Let’s try 3.3% WR, same first 5 first years worst case SORR:


Back over 99% survival (9940/10,000).  What if we go to 50 years of payout?

3.3 WR @ 5 yrs worst initial SORR allows 50 years of benefit success 9 times out of 10.  Pretty amazing!  What if we go back to normal SORR, 50 year payout normal inflation and 3.3% WR?

Back to 9970/10,000 successes, all from 7 stocks and a bond.   Would I buy this?   This doesn’t analyze the Dobermann’s results.  It analyzes 1 year of the screen, the past year 2018 which has been nothing to write home about, in fact it’s underwater.  I need more info but it looks interesting.

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