We have discussed the composition and aggregate performance of the Compact Model Portfolio in other articles in this blog. Briefly, it is composed using a ranking that results from the application of time series analysis methodologies to the total value traded rather than the stock price.

In the above chart we exhibit a simple conditional analysis of the average return over the prior decade of portfolio members versus their ranking number. In these series, when the stock rank changes we follow the rank and not the stock. Thus the performance of the stock ranked “1” is the performance of the first ranked stock through time and not the performance of the stock currently ranked “1” (which is currently AAPL). In the chart we do see an out-performance for the higher ranked stocks, but its statistical significance is only notable when the general trend is estimated. If each rank were considered separately, we would not accept the hypothesis that the stock has significantly outperformed the benchmark.