Another quarter, another performance update for the tracking portfolios and rating categories.

Up to this point, all of our spell tracking and ratings groupings had basically been going up in a straight line for the two and a half years we've been tracking them. The market has been remarkably steady and rising in that time period.

Well, in Q4 we got our first taste of the flip side of the stock market in some time.

As the saying goes, the market goes down faster than it goes up - although over time it goes up more than it goes down. We certainly saw that in Q4, at least through November.

Across the board, for all 4 of the spells and all 3 of the business rating categories, we saw our performance decline not only on a real basis, but also vs. the S&P 500.

This is neither a great surprise, nor should it be any cause of great alarm. Downturns in the market are a normal part of investing. In fact, long-term investors often savor these moments, as it offers a rare opportunity to buy some really great companies at discounts you just don't get very often.

What does concern me is the continued under-performance of both the Magic Recipe and Deep Value spells. Both continue to trail the market pretty substantially after almost three years. In the case of the Deep Value spell, its nearly 25% under-performance is remarkable and unacceptable. We're pretty much at the point where the poor performance of this screening "recipe" is no longer worth following. It is likely we will drop the spell for 2019 and beyond - there is no reason to continue tracking it.

On the other hand, both the Quality Growth and Green Team spells have done quite well. Even after both trailed the market in Q4, they continue to dramatically outperform the market. Quality Growth has more than doubled the market's returns, while Green Team has more than tripled the market.

Additionally, the rating category breakdowns continue to work out as expected. 'Red' rated stocks have performed poorly and trailed the market substantially. 'Yellow' rated stocks have outperformed the market by a good clip, with 'Green' rated stocks performing best of all. When you consider the stock market as a pyramid, with 'Red' rated stocks most numerous at its base, it becomes clear that just avoiding the mediocre business models alone is a pretty good way to succeed.

In all, the performance tracking continues to validate the core message here: that the best way to win in the stock market is to stick to growing companies with reliable revenues and strong competitive advantages and hold them for long periods of time. That's it.

Here are the full performance metrics from last quarter. You can see the full cumulative performance on the tracking portfolios page.

Spells Tracking Performance

Spell Q4 Change Q4 vs S&P Cumulative Cumu. vs S&P

Magic Recipe -14.19% -7.59% 30.06% -8.55%

Deep Value -15.68% -9.08% 13.52% -25.09%

Quality Growth -23.91% -17.31% 86.78% 48.17%

Green Team -12.41% -5.81% 37.05% 25.47%

Ratings Average Per Stock

Rating Q4 Change Q4 vs. S&P Cumulative Cumu. vs S&P

Red -10.96% -4.68% 1.57% -9.63%
Yellow -17.83% -11.56% 32.77% 21.90%
Green -15.28% -9.71% 41.39% 28.62%