The document discusses separating stock markets into two portfolios: the "Grail portfolio" which tends not to lose value, and the "Goat portfolio" which tends not to gain value. It provides an example of a Grail portfolio created using stocks from the Dow Jones Industrial Average between 2000-2008 that started at zero value and increased to $11.6 million, outperforming the Dow which lost value over the same period. The document argues this demonstrates the existence of portfolios that provide high returns with near-zero risk, and that its methodology can be used to create investment products guaranteeing capital safety and returns.

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Page 1 of 4 March 2011 © Copyright StockTakers Limited, All Rights Reserved. Copying Prohibited.
The author does not provide investment advice. In order to use reproduce or convey the material herein,
in any way, written agreement must be obtained from the author or its agent Architypes Inc.
StockTakers Limited is an Alberta corporation providing information on “likeables” equities.
StockTakers Limited encourages your seeking tax law advisor for capital gains tax dispositions.
The Grail and The Goat Portfolios
The Ancient Fable of the Grail and the Goat
“ ,,, all sorts of considerations enter into market valuation which are in no way relevant
to the prospective yield.” - J. Maynard Keynes 1936i
.
The major stock markets can be shown to “separate” into two portfolios of stocks. One portfolio
of equities has the very opportune properties of a (1) zero risk and (2) zero beta stock portfolio
within the meaning of those terms in economics. The others remaining, or contra portfolio results
from the first’s separation, with some conceptual adjustments, the Capital Asset Pricing Model
(CAPM). Both parts must obtain in order that the separation rule be effective.
The separated portfolios can be formally described as first, “a portfolio of stocks that tends to not
lose in value” and then the second its complement, the contra, “a portfolio of stocks that tends to
not gain in value”. These are the Grail and the Goat of every market as we know exist. One, the
first, we can drink from endlessly while the other may waste our gardens and our forests, as well
as our wallets, to which we are contra disposed.
With those definitions, more appears to be true but is not guaranteed or required by the theory,
namely that the first portfolio not only tends to not lose in value but to gain in value absolutely
and against the market, up or down, the Grail. Whereas its complement the Goat not only tends
to not gain in value but to lose in value absolutely and against the market, increasing less in a
rising market and decreasing more in a falling one.
A low risk tolerance investor will accept the first portfolio readily as it is his wish to not lose.
That is the Grail of investment after all; it is paramount to not lose ones savings, while hopeful of
making some gains. Such is the nature of a Consol is it not? Ones money at least is kept at the
value roughly presumed of the natural rate of inflation long observed and respected that it be so.
It is a rate in line with the rate of population growth and innovation, a rent on the money needed.
There will be fluctuations in the markets, but the tendency of the first separated portfolio The
Grail is calm and observed to clear result over longer terms, to zero risk and zero beta with high
alpha, gains of the separated few in number which have this tendency. They do exist, we have
seen them often, later after the fact, but want and need to see these sooner for this first portfolio
to be realized, that we may hold it sooner and no others if we possibly can do so. It is the so often
heard, “If Only I Had ...” portfolio, by another familiar name, as uttered in resigned exasperation.
Its complement, however, the contra or Goat, is usually much larger by the number of eligible
companies in it. These are familiar too, as these companies in it tend to gain or lose in the stock
price with equal frequency and in more extreme amounts so that it is an appropriate domain for
the methods of CAPM and modern portfolio theory be applied there and more appropriate there
in that contra portfolio than the market as a whole. At very least because the Grail Portfolio is

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Page 2 of 4 March 2011 © Copyright StockTakers Limited, All Rights Reserved. Copying Prohibited.
The author does not provide investment advice. In order to use reproduce or convey the material herein,
in any way, written agreement must be obtained from the author or its agent Architypes Inc.
StockTakers Limited is an Alberta corporation providing information on “likeables” equities.
StockTakers Limited encourages your seeking tax law advisor for capital gains tax dispositions.
The Grail and The Goat Portfolios
also a significant part of the market, in general, and acts as a substantial risk free asset within it
but has no meaningful beta correlation with the market as a whole as CAPM and MPT relate. In
terms of CAPM, the Grail and this complement the Goat are effectively orthogonal (in an
economic sense) by definition and generalize the concepts of the risk free asset or bond in the
equities market as a whole, although the Grail is itself a portfolio of stocks in the same market.
Because of its apparent and demonstrated high real returns, the Grail can be used to offer risk
free investment products to consumers with a reasonable prospect of high returns. Further, it
offers guaranteed capital safety and liquidity to the buyer that can easily withstand a legal
challenge when the conventional terms of risk, capital safety, and liquidity are properly defined.
Most particularly, it is shown that the time-worn concepts of risk and reward as defined by the
volatility of the expected returns, have no economic content and are implicitly defined by the
tools, not by the nature of economic activity itself. First and foremost the Grail supports risk
aversion and possibly but incidentally, high returns as well. That is good use of “likeables”.
This Grail and the Goat Portfolios exist, for we all have seen its fabled story before, always in
hind sight, unfortunately it is true. It is always such a tasty tempting meal, we have missed. We
just need a suited quiver and bow and such other skills than neither CAPM nor MPT offer! The
StockTakers “price of risk” is the “price of likeability” and has shown it such a tool.
It's not hard to see that every stock market or group of stocks such as the Dow Industrials, Dow
Transports, S&P 500, NASDAQ, etcetera, partitions naturally into exactly two portfolios of
stocks that have nice properties. In the first group, include all the companies in our “sample
space”, so to speak, for which the portfolio (as a whole, however weighted) that is created by the
selection tends to not lose in value, and in the second, or its complement, the rest, so that that
portfolio will tend to not gain in value.
Obviously, the first portfolio is a kind of “holy grail”, a “money machine” made up of pieces
readily available. The second is not bad either because having taken out the first, the remaining
portfolio will tend to not gain in value so in some sense losing is as likely as winning and so
Our risk price is calculated independently of the stock price – it is truly new information - but
balance sheet data always lag the valuation by typically three to six months because that's all the
market knows, in general. We show all the companies in our “sample space” portfolio created by
our metric tend to not lose in value, is a kind of “holy grail.” Whereas we kept our profits and
even increased them – with no change in strategy – the Dow promptly lost 40% and finished
below where it was eight years previous – and nobody knows why, it went down or up.
The portfolios selected in our metric tend to not lose money, but they also tend to gain money
absolutely and to outperform the markets that they're in. These portfolios will gain in price,
quarter over quarter, twice as often as they lose, and have the characteristic of a (1) zero risk and
(2) zero beta stock portfolio and can be said to replicate a “deep discounted zero coupon bond.”

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Page 3 of 4 March 2011 © Copyright StockTakers Limited, All Rights Reserved. Copying Prohibited.
The author does not provide investment advice. In order to use reproduce or convey the material herein,
in any way, written agreement must be obtained from the author or its agent Architypes Inc.
StockTakers Limited is an Alberta corporation providing information on “likeables” equities.
StockTakers Limited encourages your seeking tax law advisor for capital gains tax dispositions.
The Grail and The Goat Portfolios
becomes a more appropriate domain for the methods of CAPM, VaR, and portfolio
managementii
. That it can be done is also not in doubt. The portfolio that is shown in Exhibit 1:
Zero to Hero, is exactly of that sort. Any company in the DJIA during the time frame year 2000
through 2008 was in the portfolio if and only if its stock price (SP) exceeded its risk price (SF)iii
and that became the surrogate for “tending to not lose in value” and its contra, “tending to not
gain in value”.
Although we don't suggest it, there are “brute force ways” to discover portfolios like that, though
without theory there is no way to ensure that once we have found one it will continue that way.
For example, in the thirty companies of the Dow Industrials, at any time, there are exactly a mere
2^30=1,073,741,824 “portfolios”, equal-weighted, to check (plus the contra position), to see for
how long the properties obtain in each case; that is, the top portfolio tends not to lose in value
while the complement tends not to gain in value. We do not have enough money for that test.
Clearly, without a theory to explain the past, that's all that one can do is to look at the past and
just as clearly, when the test fails, the past is no longer the future, by definition. We note in
passing that the “differential” methods of most of economics are only a substitute for a search
algorithm that hopes to make a robust distinction. For example, in the Capital Asset Pricing
Model (CAPM) the distinction is made by optimizing a utility function of Sharpe-Markowitz
type and the search is made easier by assuming that the utility function is differentiable and that
the domain, stock prices, is continuous, neither assumption of which is true in practiceiv
.
Zero to Hero and 29% IRR
Exhibit 1: Portfolio Values and Cash Balances – From Zero to Hero

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Page 4 of 4 March 2011 © Copyright StockTakers Limited, All Rights Reserved. Copying Prohibited.
The author does not provide investment advice. In order to use reproduce or convey the material herein,
in any way, written agreement must be obtained from the author or its agent Architypes Inc.
StockTakers Limited is an Alberta corporation providing information on “likeables” equities.
StockTakers Limited encourages your seeking tax law advisor for capital gains tax dispositions.
The Grail and The Goat Portfolios
This Grail Zero to Hero portfolio can be described in more detail but we notice right away that
the portfolio value (which is the sum of the equity values in green and the cash balance in yellow
or pink) starts at zero and increases more or less steadilyv
to $11.6 million whereas in the same
period, the Dow Jones Industrial Average (on the same scale) starts at $11.6 million and ends up
at $9.5 million ten years later, $2 million lighter and a much more “exhilarating” ride (so much
for index investing and passive “couch potato” portfolios). We also note, for example, that
whereas the Dow ran between $10 million and $15 million (+50%) in 2004-2007, our portfolio
ran between $5 million and $10 million (+100%) during that time. It's also noteworthy that
whereas we kept our profits and even increased them – with no change in strategy – the Dow
promptly lost 40% and finished below where it was eight years previous – and nobody knows
why. Nobody knows why it went up. And nobody knows why it went down.
Where the returns are sufficient we may drink well from this Grail Portfolio without more effort
of ourselves, children or heirs. Our theory has provided the necessary for determining the Grail
Portfolio. The StockTakers “price of likeability” has shown such Grail Portfolios exist in every
market, and even with greater internal rates of return. That is a very robust distinction.
This Grail, we may also call a “Perpetual Bond” because of both its high returns and of its capital
safety and liquidity. Both of these may be guaranteed in practice, with benchmark portfolio
returns of 30% per year as we have shown, which are often exceeded in practice as we have
continued to show, but are not guaranteed by the applicable theory of CAPM, VaR, and portfolio
management. StockTakers provides the necessary new theory of the firm that gives us that
insight, obtaining high AlphaSmart gains, nearing zero risk Beta, Capital Safety and Liquidity.
We can create such an investment product in future, which is reasonable. In fact that is without
doubt, and we shall. For now, we welcome creating wealth for our clients in their portfolios, and
gain for ourselves. We wish to create the legally requiredvi
actuarial reserve for such a “Perpetual
Bond” guarantee, as can be backed by the Grail Portfolios sought by every investor. That is the
story for another day, soon enough.
i
J. M. Keynes, The General Theory of Employment, Interest and Money, New York, 1936.
ii
The same could be said for the first or top portfolio; however, there is an implicit bias here towards winning that (we will show)
is actually rewarded. One could seek “losing” in the same way but it is not deemed “economic”.
iii
The “risk price” is a technical term to be defined herein.
iv
The “domain” dilemma is actually much worse that we have indicated. For example, what space is the space of prices? It is
certainly not a “linear vector space” because adding the market value of two companies does not give the market value of the two
companies combined. To put it another way, a stock price has an economic meaning but the sum of two stock prices (for different
companies), doesn't.
v
There are three losing quarters in the first three years (and one much later in 2008 of $60,000 in $11 million) when the equity
holdings are small in number – that's predictable and avoidable – we're not ”stock pickers” and the more that we're in the market,
bull or bear, the better.
vi
Necessary law, as prior theory to ours has not existed to account for any means to obtain consistent return for the long term.