Making the most out of Star Institution (SI) by cloning them.

Welcome back Mooers

In this post, we are going to use the SI feature to create our SI Portfolio, by following our 'Clone an SI portfolio in 8 simple steps'.

Here we go!

Step 1. Identify the number of stocks that we are willing to trade.

We will need to know what is the number of stocks that we are comfortable trading with. This number should be in a range between 5 to 35 and should be flexible for later fine-tune if required.

Step 2. Identify the list of favorite stocks that we can afford to trade with.

Besides knowing the number of stocks that we are comfortable trading with, we can also list down our favorite stocks that we can afford to trade should we buy them all. The number of favorite stocks should be in a range between 25% to 75% of the total number of stocks we had identified in step 1.

Step 3. Identify the budget that we are going to spend on our portfolio.

Next, we will need to know how much money we are comfortable to invest in our SI portfolio. This amount should be flexible enough to be tweaked at a later time if required.

Step 4. Look thru the SI we are familiar with listed in the SI feature.

Now, we will scan thru the SI list to select those SI that we are familiar with, and try to match the SI top X number of stocks with our preferences set in the first 3 steps.

Step 5. Check if SI have at least 8 consecutive years of quarterly 13F filings.

As a precaution, we would want our SI to have at least 8 consecutive years of quarterly 13F filings. This helps to let us know that the SI is committed and shown a certain degree of portfolio resilient during stock market volatility.

Step 6. Look out for any restatements (for both buys and sells) issued by SI.

Restatements may contain strategic & valuable information that is associated with significant abnormal returns. This was described in a 2021 interuniversity research report done by Sean Cao, Zhi Da, Xin Daniel Jiang and Baozhong Yang.

Step 7. Using our magic formula.

The magic formula to find out the maximum number of each stock that we can buy for our SI portfolio is:

[ (Stock weightage in SI portfolio / Total weightage of trimmed SI portfolio) x our budget (Step 3) ] / current Stock price.

Each result will be round down to the nearest integer.

Step 8. Begin our cloning via trading.

Finally, we can place our trading to make a similar clone of the SI portfolio to form our SI Portfolio.

Before we end this post, please vote if you wish to have an example to illustrate the above steps.