March 2014 AAII Model Portfolios Updated – Stocks Bounce Back and a Shadow Stock Transaction


It may not feel like it for some, but the market has had an incredible run. In fact, on March 9, we celebrated the fifth anniversary of the bull market. It is easy to discount how far the market has come. On March 9, 2009, the Dow Jones industrial average bottomed out at 6507.04, while the NASDAQ hit 1,268.64 and the S&P 500 dropped to 676.53. These numbers are astounding given the fact that these indexes closed at 16,340.08, 4,323.33 and 1,868.20, respectively, as of March 12, 2014. Back in March of 2009, negative emotions were running high. If you were disciplined enough to stay the course, or even invest more at that time, you were well rewarded with one of the longer bull rallies in recent memory. The lesson to be learned here has been summed up well by Warren Buffett—“Be fearful when others are greedy and greedy when others are fearful.”

February was a bounce-back month for the stock market. AAII’s Model Portfolios followed the strength of the overall stock market. During February, the Model Shadow Stock Portfolio gained 4.3%, underperforming the Vanguard Small Cap Index fund (NAESX), which gained 5.1%, but beating the DFA US Micro Cap Index fund (DFSCX), which was up 4.2%. For the year, the Model Shadow Stock Portfolio is still down 3.6%, which trails NAESX, which is up 2.9% and DFSCX, which is down 0.4%. The Model Shadow Stock Portfolio has a compound annual return of 17.9% from its inception in 1993, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.3% annually over the same period.

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