The Pawleys Dividend Fund has been long Home Depot stock since late 2010.  For the past four years, the total return figures for HD have been dizzying: +22% in 2011, +50% in 2012, +36% in 2013, and +30% in 2014.  It was the top performing holding for the Pawleys Dividend Fund in only one of those years – 2012.  Yet HD has been a solid contributor to the overall portfolio returns, and has helped keep our gross return figures ahead of the DJIA for each year.  We decided to break down the HD numbers on a daily basis to see if we could learn anything more.

For each year, the price movement on the stock generated the entire yearly gain in just a select number of trading days.  Traders moving in and out of the stock who were not long on those select days would have the return on their HD position reduced to zero.  What did we learn?  In 2011, the DJIA annualized total return was only 5%, while HD delivered +22%.  The entire total return could be attributed to just 6 trading days.  The markets were more robust during the other years, and the HD gains were a result of several days, not just a few.  Stock picking and extended holding periods become even more critical to delivering good performance in lackluster markets.

If we continue to hold HD during the next recession and stock market downturn – which we may or may not – we will crunch the numbers again to see how the daily returns break down in falling markets.  Stay tuned for more from the beautiful beaches of South Carolina!

Source: Yahoo! Finance

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