Testing Market Concepts

I create model portfolios frequently to test some concepts I have about the market. These portfolios range from the very simple to the relatively complex in composition. Why do I do this? Over time I've found that it is one of the better ways to learn and develop strategies and stock screens that will help you make more money.

As an learning example, let's test a simple idea: would it better for investors to buy the "recently best" performers in the S&P 500, Dow Jones Industrial Average, Nasdaq, and Russell 2000 and hold them for a month, quarter, and year or would they be better off buying the worst performers instead? To discover the answer, let's track two different portfolios:

Portfolio A:  This portfolio will hold 20 of the best performers over the past 90 days in the S&P 500, Dow, Nasdaq, and Russell 2000 (five top performing stocks from each index)

S&P 500
Goodyear Tire (GT)
Temple Inland (TIN)
Dollar General (DG)
Radioshack (RSH)
Big Lots (BIG)

Dow Jones Industrial Average
Alcoa (AA)
Du Pont de Nemours (DD)
Honeywell (HON)
Caterpillar (CAT)
Altria (MO)

Nasdaq 100
Millicom (MICC)
Wynn Resorts (WYNN)
Expedia (EXPE)
Express Scripts (ESRX)
Ryanair (RYAAY)

Russell 2000
M&F Worldwide (MFW)
CF Industries (CF)
Jones Soda (JSDA)
Terra Industries (TRA)
Markwest Hydrocarbon (MWP)

Portfolio B:  This portfolio will hold 20 of the worst performers over the past 90 days in the Dow, S&P 500, Nasdaq, and Russell 2000 (five worst performing stocks from each index)

S&P 500
Advanced Micro Devices (AMD)
Circuit City (CC)
Constellation Brands (STZ)
Applera (ABI)
Amgen (AMGN)

Dow Jones Industrial Average
General Motors (GM)
Johnson & Johnson (JNJ)
Intel (INTC)
Pfizer (PFE)
Merck (MRK)

Nasdaq 100
Vertex Pharmaceuticals (VRTX)
Bea Systems (BEAS)
Electronic Arts (ERTS)
Sirius Satellite Radio (SIRI)
Symantec (SYMC)

Russell 2000
Nuvelo (NUVO)
Atherogenics (AGIX)
Novastar (NFI)
Northfield Labs (NFLD)
Telik (TELK)

In you opinion....

Which portfolio will outperform over the next month, quarter, and year?
	Portfolio A (Top Index Performers)
	Portfolio B (Worst Index Perfromers)

I'll be keeping track of these portfolios using today's closing price and I'll report back later when we have some results to talk about. If history repeats, I think you'll find the results quite interesting.