January 2nd, 2006
I don’t know about you but IBD’s 100 has always been a mysterious “black box” for me.
- Stocks are added one week and disappear the next.
- One stock might move up from a rank of 85 to 24 in a week; another might drop from first place to 6th and then back up to 2nd.
- Another stock might be added to the list after having consistently increased in price from 15 to 40 over the past 12-18 months only to see its price stall out for the next month or two.
And I’ve been unable to discover how the IDB 100 Index, which they claim has increased 125.3% compared to only a mere 36.4% increase in the S&P500 since May 2, 2003, is actually constructed. For example,
- How is each stock weighted in the average: equal, capitalization, shares outstanding, average trading volume?
- Does the Index only include stocks in the Index on the previous Friday (that’s when new lists are published)?
While I accept that most stocks selected for the 100 Index have tremendous track records, I’ve also found that, as an individual investor, using the Index consistently and simply when trying to match its track record is difficult, if not impossible.
I’ve tracked it all the stocks that are or have been in the IBD 100 for the past 40 weeks in a separate watchlist and offer the following observations:
- Nearly 400 stocks have been, or still are, part of the IBD 100 Index over that time (a turnover of 300%!).
- The average time these 400 spend on the list is 10 weeks. The current 100 have been in the list and average of 16 weeks so, obviously, many stocks no longer in the list were there only briefly.)
- Four stocks have been on the list nearly the whole time although ranked variously from 1 to 57: Quality Systems (QSII), Southwestern Energy (SWN), Google (GOOG – mysteriously omitted the week of 10/21) and Tenaris (TPX – omitted week of 4/29)
I looked at some of the stocks that were added this past Friday and found the following:
- Microstrategy (MSTR) – Currently ranked 77 after an 8-week absence. Was in list for 12 weeks 8/5-10/21 when it ranked mostly in the 20’s and 30’s. It is now bumping against an upper boundary resistance level similar to the ELOS and GOOG discussed here earlier.
- Varian (VAR) – Joins the list at Rank 89 after a one week presence on 12/2 at Rank 95. As is evident in the chart, the stock broke out of a pennant consolidation pattern on 10/17 to 40.5 and rocketed over 25% to the low 50’s where it stalled and was added to the IBD 100. (If it was a good enough stock to put on the list on 12/2 why wasn’t it good enough to include nearer the beginning of its upside up 8 weeks earlier?).
- Berkely Corp. (BER) – Here’s a strange one. BER was included in the IBD 100 on 10/28 (at Rank 90), 11/04 (at Rank 96) and in last week’s 12/30 (again at Rank 90). But the stock has been a consistent winner since breaking out of a consolidation pattern at 14.3 on Oct. 4, 2001 and has increased 228% to 47.62 on Friday’s close. It’s nice to include BER in the list, but why now and not at any time during the past 4 years!
- Rio Tinto (RTP) – Joins the list at Rank 89 two weeks ago and dropped to 91 last week; it was on the list for a week on 10/14 at Rank 91. But RTP has been a star mover by doubling since it broke out in August, 2003 at around 88. Again, why now and not earlier?
- Global Payments (GPN) – It’s about time! GPN rejoins the list at 95 after a 7 week absence; it was on the list for three weeks ranked in the 70’s during 10/14-10/28. After breaking through a resistance trendline at 25 on 9/24/04, it has shot up almost without a consolidation break to its current 46.61.
- Dressbarn (DBRN) – The stock broke through a clear resistance trendline at 18 with a gap on 6/01 and, except for a retrenchment during August and September, continued to more than double to 38 last Friday when it finally made the list at Rank 99. Now that it’s on the list, can it be expected to do an encore performance over the next several months? I think that’s highly unlikely.
I could have included several more but I think you get the picture.