For those who hold individual stocks…

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For those who hold individual stocks…

Postby agill99 » Fri Dec 28, 2012 12:39 pm

How do you “pick” your stocks?

I know that a lot of members of the forum have individual stocks in their portfolios and I am wondering how you select these. Is there a philosophy or rationale you use, e.g. high-yield dividend stocks?

Just for clarity, I’m not talking about trading stocks but selecting individual stocks as a long-term (5 year minimum) investment. I ask because I am happy with my asset allocation and am looking to add some individual stocks, if I find one I think is a good long-term investment.

Thanks in advance.
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Re: For those who hold individual stocks…

Postby kenyan » Fri Dec 28, 2012 12:44 pm

I don't pick stocks, but perhaps a good place to start would be Benjamin Graham's The Intelligent Investor.
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Re: For those who hold individual stocks…

Postby livesoft » Fri Dec 28, 2012 12:50 pm

If you want to pick growth stocks, then take a look at the methods espoused by www.betterinvesting.org It IS interesting to me though that their first tab is Mutual Funds and not Stocks. What has become of this stock picking organization?
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: For those who hold individual stocks…

Postby bdpb » Fri Dec 28, 2012 4:09 pm

Darts. No monkeys (lower costs. Don't have to buy bananas). :P

http://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-can-beat-the-market/
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Re: For those who hold individual stocks…

Postby Wagnerjb » Fri Dec 28, 2012 4:21 pm

I hold individual stocks as the US Large Cap portion of my portfolio, while all the remaining asset classes are in mutual funds. I do so primarily for tax benefits and the ability to diversify away from my industry (energy).

My goal is to hold a well-diversified, passive, low-cost, tax efficient portfolio. I hold about 30 stocks and my goal is to match the Large Cap returns (with energy stripped out). When I pick a stock, I choose one with the goal of a) improving diversification and b) minimizing dividend yield - for tax efficiency. I improve diversification by picking a company in an asset class that is underweight in my portfolio. In addition, I try to have several stocks per sector...in different areas of that sector. For example, in the Financial sector I may try to have a bank, an insurance company and a brokerage.

The diversification and tax-effiency goals can be at odds with each other. It isn't possible to have a complete portfolio of zero-dividend companies and be well diversified. So I generally pick the sector area I want...then choose the lowest dividend payout firm in that area.

Best wishes.
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Re: For those who hold individual stocks…

Postby Sidney » Fri Dec 28, 2012 4:30 pm

bdpb wrote:Darts. No monkeys (lower costs. Don't have to buy bananas). :P

http://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-can-beat-the-market/

Plus if you go to your local pub they may frown on you throwing monkeys against the wall while you enjoy a cool one.
I always wanted to be a procrastinator.
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Re: For those who hold individual stocks…

Postby WVUGuy275 » Fri Dec 28, 2012 4:51 pm

agill99 wrote:Just for clarity, I’m not talking about trading stocks but selecting individual stocks as a long-term (5 year minimum) investment. I ask because I am happy with my asset allocation and am looking to add some individual stocks, if I find one I think is a good long-term investment.


Agill99 - I also enjoy adding some individual stocks from time to time, and I tend to follow the principles of Benjamin Graham (as another posted mentioned above). If you haven't read The Intelligent Investor, that's a great place to start when considering how one might go about picking individual stocks for a long-term investment.

I also appreciate the blog/writing of Joshua Kennon. The majority of his website (in my opinion) is good reading, but this article on researching businesses may provide a good starting point for you: http://www.joshuakennon.com/an-overview-of-how-i-research-stocks/. If you're still interested after reading that, his article (and perspective) on calculating intrinsic value (using General Mills as a case study) is pretty interesting too: http://www.joshuakennon.com/mail-bag-wh ... sic-value/.

- WVUGuy275
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Re: For those who hold individual stocks…

Postby CABob » Fri Dec 28, 2012 5:34 pm

I hold a few stocks, but, they are long term holdings from my pre-Boglehead days. I haven't sold them because of capital gains and they pay decent dividends. I gave some consideration to selling this year, but, decided against it.
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Re: For those who hold individual stocks…

Postby Valuethinker » Fri Dec 28, 2012 5:49 pm

agill99 wrote:How do you “pick” your stocks?

I know that a lot of members of the forum have individual stocks in their portfolios and I am wondering how you select these. Is there a philosophy or rationale you use, e.g. high-yield dividend stocks?

Just for clarity, I’m not talking about trading stocks but selecting individual stocks as a long-term (5 year minimum) investment. I ask because I am happy with my asset allocation and am looking to add some individual stocks, if I find one I think is a good long-term investment.

Thanks in advance.


Several:

- if I own for income then a well covered dividend yield (1.5 times EPS/ DPS at least for a utility, 2 times for a regular company) and a record of raising dividends

- If I own for growth then operates in a growing market with a strong market position - think Toronto Dominion Bank (which has almost zero per cent. exposure to risky investment banking activities)

- not overexposed to one commodity (except oil & gas) or factor (so avoided RIM/ Blackberry). Nortel was an object lesson-- lost 100% of my money

- an upside case, eg Canadian Natural Resources Horizon oil sands project. I used to love it that CNQ put the name of every employee (in quite small print) in the Annual Report-- I thought it said something very good about the company

- confidence that management has historically acted in the best interests of shareholders, eg due to a large personal stake (Thomson-Reuters) or corporate change of management (Magna), or just track record

- in all cases balance sheet strength - whether debt/ (debt + market capitalization) of less than 50%, EBIT interest cover of at least 2-3 times, cash on the balance sheet dilutes EPS but is always nice to see (might lead to buybacks or special dividends). Management which is cautious about large acquisitions. High credit rating

Graham's 'Margin of Safety' is important, and i am proxying that with the above point. First lesson of investing: don't lose money. Second lesson of investing? Don't lose money. Blew that with Nortel and that has always made me cautious of tech

- 'value' in the sense that net asset value (often defined as management defines it, rather than accounting book value per se) is an object which management has the objective (and a track record) of growing, and the shares are at or below this fundamental value (Brookfield, Fairfax)

- Some aspect of a 'story' eg out of favour, not widely followed because too complex (think Fairfax Financial, Leukadia etc.) and conglomerate-like or poor past performance (but some catalyst of changed management or fundamentals).

The reasons why I hold individual stocks are historic and complex, but there's no easy way out of that position. So I buy, usually around 5% of the total portfolio, then allow portfolio drift by buy-and-hold (dividends cause some form of rebalancing).
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Re: For those who hold individual stocks…

Postby mrpotatoheadsays » Sat Dec 29, 2012 12:31 pm

agill99 wrote:How do you “pick” your stocks?


Based on Benjamin Graham's principles... given that the market is usually fully-priced or over-priced, I rarely purchase individual stocks. The last time I purchased stocks was at the bottom of the Great Recession... and it was truly great. I can hardly wait for the next overhyped, world-is-ending Great Recession, until then I'll be buying another of Graham's recommendations: an index fund; specifically the Vanguard 500 Index mutual fund.
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Re: For those who hold individual stocks…

Postby bullie76 » Sat Dec 29, 2012 1:22 pm

I primarily invest in dividend stocks. My starting point is using S&P 500 stock screeners using their reports and stay with 4 and 5 star companies. I also use the Value Line Dow 30(free) for additional information. And I also get ideas from the Dividend Growth Investor blog. I usually seek out companies with a 3+ % dividend yields although I will buy some below that if they have good appreciation potential.
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Re: For those who hold individual stocks…

Postby nedsaid » Sat Dec 29, 2012 3:04 pm

Many years ago, a friend of mine went into the brokerage business. He lasted about a year but I moved my bank IRA to a brokerage account and started with individual stocks. Three brokers and one firm later, I still have the account.

It was a good learning experience. Pretty much, I attempted to buy value stocks that in most cases paid a dividend. My holding period in in excess of five years and probably a lot more. I rarely trade.

After the 2000-2002 bear market, I mostly lost interest in researching stocks. I used to religiously look at the Value Line at the public library and read other financial publications for ideas. I read two books by Peter Lynch on stock picking but never achieved his results. I was a member of the National Association of Investment Clubs for a few years. It was a huge amount of work and the stocks performed about as expected.

I learned that the boring investments are usually the best. It is much easier to make a good buy decision than it is to make a good sell decision. Often what I sold outperformed what I bought to replace it. I learned that trading and tinkering do not add to results. Buy good stuff and keep it. Sell when the reason you bought no longer exists, the investment has disappointed over a long period of time, or if the investment has become richly priced. Dividends are great because you get paid to wait.

A good rule of thumb is that out of five carefully chosen stocks: one will bomb, one will do great, and three will do about as expected.

In recent years, I have mostly let my stocks ride. I have made a few trades.

I have since then branched out to mutual funds and ETFs in that same account. What is cool is the amount of dividends that come in every year which are reinvested.

I branched out my workplace savings plan and an IRA account somewhere else. My last check was that the individual stocks are a bit less than 15 percent my the total portfolio. I am indexing more and more of my investments as I get older.
A fool and his money are good for business.
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Re: For those who hold individual stocks…

Postby statsguy » Sat Dec 29, 2012 4:18 pm

agill99 wrote:How do you “pick” your stocks?

I know that a lot of members of the forum have individual stocks in their portfolios and I am wondering how you select these. Is there a philosophy or rationale you use, e.g. high-yield dividend stocks?

Just for clarity, I’m not talking about trading stocks but selecting individual stocks as a long-term (5 year minimum) investment. I ask because I am happy with my asset allocation and am looking to add some individual stocks, if I find one I think is a good long-term investment.

Thanks in advance.


When it comes to individual stocks, we buy dividend stocks. We do this because... well in another thread a poster wrote

3. This couple has more than $500,000 in after tax savings to get $10,000 in dividends - more if we believe they get a $600 foreign tax credit; and


but it has been my experience that we can earn $10K in dividends on somewhere between $200K and $250K in dividend stocks.

Explaining what we do exactly would make this post to long... the short answer is, we look for
(1) stocks that yield a minimum of 150% of the yield the 500 Index
(2) have increased their divided over the long-term (say ten years)
(3) have enough earnings to meet their dividend
(4) have some kind of a "moat"
(5) have a quality management team which is supportive of dividends and shareholders

and more, for example, we would never buy a companies stock unless it were depressed for some reason.

Currently we have around 35 stocks that basically stand for the value side of our US allocation. We own mutual funds for US growth and midcaps, for international and for bonds.

Wishing you a happy New Year
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Re: For those who hold individual stocks…

Postby mlewis » Sat Dec 29, 2012 7:53 pm

If you seem to think that a formula for picking stocks can be condensed into a message board post, or that some random internet user will give you the secret to success, then you, along with 99.9999% of the people (professionals included) out there should definitely not be picking stocks.
Don't waste your time/money.
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Re: For those who hold individual stocks…

Postby donall » Sat Dec 29, 2012 8:51 pm

I do stock picking for fun and use a very small part of savings. I use typical value criteria, stick to dividend stocks, and sell when the stocks have gained in value over 25% and are long term gains. This lets me stay focused on index investing and bonds/CDs.
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Re: For those who hold individual stocks…

Postby cheesepep » Sun Dec 30, 2012 2:44 pm

My entire portfolio is in dividend growth stocks and I have done very well. I only buy stocks selected from the list of David Fish, I believe, on seekingalpha.com, and I hold for long-term and buy more on the dips. Sometimes I reinvest the dividends and sometimes I do not.
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Re: For those who hold individual stocks…

Postby pennstater2005 » Sun Dec 30, 2012 2:49 pm

donall wrote:I do stock picking for fun and use a very small part of savings. I use typical value criteria, stick to dividend stocks, and sell when the stocks have gained in value over 25% and are long term gains. This lets me stay focused on index investing and bonds/CDs.


How do you define long term gains?
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Re: For those who hold individual stocks…

Postby statsguy » Sun Dec 30, 2012 3:16 pm

pennstater2005 wrote:
donall wrote:I do stock picking for fun and use a very small part of savings. I use typical value criteria, stick to dividend stocks, and sell when the stocks have gained in value over 25% and are long term gains. This lets me stay focused on index investing and bonds/CDs.


How do you define long term gains?


I am pretty sure donall meant that the capital gains would be treated as long term (ie the stock had been held for at least one year). This assumes the dividend stock is held in a taxable account.

When we buy an individual stock we intend to hold it forever. We have sold stocks when they no longer fit into our plan or, more likely, the dividend has been put at risk. Morningstar says our average holding period is about 15 years (that we have had a turnover of 0.68% over the last eight years).

Personally, I do not think that rules such as selling when you have gained over 25% (or any other number) would work for me. That is because such a rule would increase our turnover (and costs) and increase the amount of time I spend evaluating stocks.

Best wishes for the new year to everyone
Stats
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Re: For those who hold individual stocks…

Postby pennstater2005 » Sun Dec 30, 2012 4:53 pm

statsguy wrote:
pennstater2005 wrote:
donall wrote:I do stock picking for fun and use a very small part of savings. I use typical value criteria, stick to dividend stocks, and sell when the stocks have gained in value over 25% and are long term gains. This lets me stay focused on index investing and bonds/CDs.


How do you define long term gains?


I am pretty sure donall meant that the capital gains would be treated as long term (ie the stock had been held for at least one year). This assumes the dividend stock is held in a taxable account.

When we buy an individual stock we intend to hold it forever. We have sold stocks when they no longer fit into our plan or, more likely, the dividend has been put at risk. Morningstar says our average holding period is about 15 years (that we have had a turnover of 0.68% over the last eight years).

Personally, I do not think that rules such as selling when you have gained over 25% (or any other number) would work for me. That is because such a rule would increase our turnover (and costs) and increase the amount of time I spend evaluating stocks.

Best wishes for the new year to everyone
Stats


Makes sense. Thanks Stats.
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Avoiding a BIG mistake

Postby Taylor Larimore » Sun Dec 30, 2012 5:46 pm

agill99 wrote:How do you “pick” your stocks?

I know that a lot of members of the forum have individual stocks in their portfolios and I am wondering how you select these. Is there a philosophy or rationale you use, e.g. high-yield dividend stocks?

Just for clarity, I’m not talking about trading stocks but selecting individual stocks as a long-term (5 year minimum) investment. I ask because I am happy with my asset allocation and am looking to add some individual stocks, if I find one I think is a good long-term investment.

Thanks in advance.


Agill:

Before buying individual stocks, I STRONGLY suggest you consider the logic and advice of these financial authorities:

"If you, like Walter Mitty--still fantasize that you can and will beat the pros, you'll need both luck and prayer." -- Charles Ellis, author of "Winning the Loser's Game."

"I have little confidence, even in the ability of analysts, let alone untrained investors, to select common stocks that will give better than average results."-- Benjamin Graham

"Picking individual stocks is like volleying with the Williams sisters." -- Wm Bernstein, author of "The Four Pillars of Wisdom." (Professional investors with large staffs and vast research budgets do over 90% of each days trading volume.)

"Are you smarter than the average professional investor? Probably not." -- John Bogle

"There's no way that spending a few hours a week looking at individual securities is going to equip an investor to compete with the incredibly talented, highly qualified, extremely educated individuals who spend their entire professional careers trying to pick stocks." -- David Swensen, Chairman of Yale Investments.

"The notion that most average people and non-investment professionals can, with minimal effort, beat the best full-time, experienced money managers is, how should I say, ludicrous and absurd." -- Eric Tyson, author of Mutual Funds for Dummies


I hope these financial experts keep you from making a big mistake.

Happy New Year!
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: For those who hold individual stocks…

Postby donall » Sun Dec 30, 2012 11:06 pm

pennstater2005 wrote:
donall wrote:I do stock picking for fun and use a very small part of savings. I use typical value criteria, stick to dividend stocks, and sell when the stocks have gained in value over 25% and are long term gains. This lets me stay focused on index investing and bonds/CDs.


How do you define long term gains?


pennstater2005, I define long term gains as equities held over one year that are held in a taxable account. Stock picking is a method for me to learn more about the markets, companies, spreadsheets, dividends, and finance in general while I have "skin in the game." It allowed me to attend shareholder meetings, learn to read company financials, learn about DRIPS, expenses, etc. and realize that there is a lot (way more than Boglehead investing) of written material available on stock picking. I've also learned I am not a gambler and so could never earn sufficient money through stock picking, as my stock choices are few and timed. They have earned good money, but are not worth the time and effort involved.
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Re: For those who hold individual stocks…

Postby BHCadet » Sun Dec 30, 2012 11:18 pm

We used to have lot of stocks and thought we were sophisticated investors, especially during the dot com era with those internet stocks.
But, now we only have two and they’re from our employers’ matching of our 401k contributions.
And we convert them to the index funds in our 401k plans as soon as we’re allowed.
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Re: For those who hold individual stocks…

Postby Petrocelli » Sun Dec 30, 2012 11:38 pm

Use this screen: (1) Beta less than 1; (2) dividend yield greater than 2%; (3) PE ratio of less than 20; and (4) market cap greater than $10 billion.

Put the dividends in cash. Every few months, buy one of the 5 stocks with the lowest balance.

Here's a sample portfolio:

http://socialize.morningstar.com/NewSocialize/PortfolioSharing/SharedPortfolioSnapshot.aspx?q=C9791DD47C472479
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Re: For those who hold individual stocks…

Postby Mopang » Mon Dec 31, 2012 12:00 am

I bought a few individual stocks (Ford, GE, CSCO) in March 2009, when the market was way down, and they have done very well since, but the reality is that I could have bought shares of a LCV index fund and done almost as well without anywhere near the level of risk entailed in owning a handful of stocks. The next time we have a crash, I'll be even more aggressive--but stay away from individual stocks. And I don't believe that the experts can stock pick either.
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Re: For those who hold individual stocks…

Postby MnD » Mon Dec 31, 2012 12:12 am

Along the lines of Peter Lynch "One up on Wall Street" book - especially when it comes to industry-specific knowledge in the field you work in.
I also keep it at/under 5% of my portfolio.
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Re: For those who hold individual stocks…

Postby bdpb » Mon Dec 31, 2012 1:52 am

Petrocelli wrote:Use this screen: (1) Beta less than 1; (2) dividend yield greater than 2%; (3) PE ratio of less than 20; and (4) market cap greater than $10 billion.

Put the dividends in cash. Every few months, buy one of the 5 stocks with the lowest balance.

Here's a sample portfolio:

http://socialize.morningstar.com/NewSocialize/PortfolioSharing/SharedPortfolioSnapshot.aspx?q=C9791DD47C472479


Darn, now that the secret sauce is out we'll have to switch to a new recipe. :P

There's always the "Dogs of the Dow".

Presumably, one would need to sell these stocks once they no longer meet the criteria, right?

Or you could buy a Large Cap Value fund if you wanted to own something other than market weight.

Listen to Taylor, he is a sage.
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Re: For those who hold individual stocks…

Postby Petrocelli » Thu Jan 03, 2013 6:31 pm

bdpb wrote:
Petrocelli wrote:Use this screen: (1) Beta less than 1; (2) dividend yield greater than 2%; (3) PE ratio of less than 20; and (4) market cap greater than $10 billion.

Put the dividends in cash. Every few months, buy one of the 5 stocks with the lowest balance.

Here's a sample portfolio:

http://socialize.morningstar.com/NewSocialize/PortfolioSharing/SharedPortfolioSnapshot.aspx?q=C9791DD47C472479


Darn, now that the secret sauce is out we'll have to switch to a new recipe. :P

There's always the "Dogs of the Dow".

Presumably, one would need to sell these stocks once they no longer meet the criteria, right?

Or you could buy a Large Cap Value fund if you wanted to own something other than market weight.

Listen to Taylor, he is a sage.


I try not to sell stocks, and haven't done so in a couple years.

With respect to buying a large cap value ETF, you should note that according to M*, this stock portfolio has outperformed the large value category by 3.25% per year over the last 3 years. I have no idea why it is doing so.

In the end, I have a stock portfolio with low volatility that behaves very differently than my mutual fund portfolio. Exclusive of returns, I like its diversification benefits.
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Re: For those who hold individual stocks…

Postby Valuethinker » Thu Jan 03, 2013 7:07 pm

Petrocelli wrote:
bdpb wrote:
Petrocelli wrote:Use this screen: (1) Beta less than 1; (2) dividend yield greater than 2%; (3) PE ratio of less than 20; and (4) market cap greater than $10 billion.

Put the dividends in cash. Every few months, buy one of the 5 stocks with the lowest balance.

Here's a sample portfolio:

http://socialize.morningstar.com/NewSocialize/PortfolioSharing/SharedPortfolioSnapshot.aspx?q=C9791DD47C472479


Darn, now that the secret sauce is out we'll have to switch to a new recipe. :P

There's always the "Dogs of the Dow".

Presumably, one would need to sell these stocks once they no longer meet the criteria, right?

Or you could buy a Large Cap Value fund if you wanted to own something other than market weight.

Listen to Taylor, he is a sage.


I try not to sell stocks, and haven't done so in a couple years.

With respect to buying a large cap value ETF, you should note that according to M*, this stock portfolio has outperformed the large value category by 3.25% per year over the last 3 years. I have no idea why it is doing so.

In the end, I have a stock portfolio with low volatility that behaves very differently than my mutual fund portfolio. Exclusive of returns, I like its diversification benefits.


This is not stupid.

The latest anomaly discovered is the 'low Beta anomaly'.

A portfolio of stocks with low betas outperforms the market as a whole.

The foremost practitioner (see Larry Swedroe's posts on this low volatility stock anomaly): Warren Buffett.

What Buffett does is leverage up via the insurance side, and invest the money in low volatility stocks.

Question: now we know the anomaly exists, does it persist? It is relatively easy to duplicate.


Altria Group Inc.

International Business Machines Corp

Home Depot, Inc.

Kinder Morgan Energy Partners LP

3M Co

Colgate-Palmolive Company

AT&T Inc

McDonald's Corporation

Automatic Data Processing

Exxon Mobil Corporation

Wal-Mart Stores Inc

United Technologies Corp

General Mills, Inc.

Vanguard Utilities ETF

Johnson & Johnson

PepsiCo Inc

Campbell Soup Co

Procter & Gamble Co

Archer-Daniels Midland Company

Abbott Laboratories

Kimberly-Clark Corporation

Microsoft Corporation

Northrop Grumman Corp

Southern Co

SPDR Gold Shares

Looking at that list:

- what causes you to sell?

- if you expanded it internationally (say Nestle, but lots of reasons not to own Nestle right now) then you might add to the performance of that list.

GE is the one that surprises me it is missing. I guess recent years have had too great a toll.

I would want to own financials. Berkshire Hathaway for one. Probably another bank. Toronto Dominion perhaps.
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Re: For those who hold individual stocks…

Postby bdpb » Thu Jan 03, 2013 8:13 pm

Valuethinker wrote:
Petrocelli wrote:
bdpb wrote:
Petrocelli wrote:Use this screen: (1) Beta less than 1; (2) dividend yield greater than 2%; (3) PE ratio of less than 20; and (4) market cap greater than $10 billion.

Put the dividends in cash. Every few months, buy one of the 5 stocks with the lowest balance.

Here's a sample portfolio:

http://socialize.morningstar.com/NewSocialize/PortfolioSharing/SharedPortfolioSnapshot.aspx?q=C9791DD47C472479


Darn, now that the secret sauce is out we'll have to switch to a new recipe. :P

There's always the "Dogs of the Dow".

Presumably, one would need to sell these stocks once they no longer meet the criteria, right?

Or you could buy a Large Cap Value fund if you wanted to own something other than market weight.

Listen to Taylor, he is a sage.


I try not to sell stocks, and haven't done so in a couple years.

With respect to buying a large cap value ETF, you should note that according to M*, this stock portfolio has outperformed the large value category by 3.25% per year over the last 3 years. I have no idea why it is doing so.

In the end, I have a stock portfolio with low volatility that behaves very differently than my mutual fund portfolio. Exclusive of returns, I like its diversification benefits.


This is not stupid.

The latest anomaly discovered is the 'low Beta anomaly'.

Question: now we know the anomaly exists, does it persist? It is relatively easy to duplicate.

- what causes you to sell?

- if you expanded it internationally (say Nestle, but lots of reasons not to own Nestle right now) then you might add to the performance of that list.

GE is the one that surprises me it is missing. I guess recent years have had too great a toll.

I would want to own financials. Berkshire Hathaway for one. Probably another bank. Toronto Dominion perhaps.


I hope you aren't suggesting that I called this stupid, are you? If not, why did you include my quotes?

Anomaly sounds a lot like a secret sauce to me.

Didn't I ask the same question about selling? And like you asked, "where are the International stocks?" Or is this a US only anomaly?

What I don't really understand about a method like this is the arbitrariness of the numbers used? What makes a 2% dividend relevant? Why isn't 1.8% or 2.2% better? My same lack of understanding applies to the PE and market cap numbers.
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Re: For those who hold individual stocks…

Postby wesleymouch » Thu Jan 03, 2013 8:20 pm

I have legacy stocks from my preBoglehead days. They have big gains but I don't want to pay the taxes.
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Re: For those who hold individual stocks…

Postby bdpb » Thu Jan 03, 2013 9:21 pm

wesleymouch wrote:I have legacy stocks from my preBoglehead days. They have big gains but I don't want to pay the taxes.


Be careful not to let the tax tail wag the dog. Better to pay 15% CG and diversify than to lose 30% of your gain.
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Re: For those who hold individual stocks…

Postby Valuethinker » Fri Jan 04, 2013 8:47 am

bdpb wrote:I hope you aren't suggesting that I called this stupid, are you? If not, why did you include my quotes?



Perhaps erroneously-- my apologies. The web does not convey tone-- imagine someone imitating a British don (academic)-- 'not stupid' is the flip side of 'very interesting' in Brit speak. Ie 'very interesting' means it is going nowhere, not going to happen (think 'Yes Minister' the TV series). 'Not stupid' means it is actually not outlandish, worthy of consideration, there could be something to do it.

Anomaly sounds a lot like a secret sauce to me.


That is the usual Efficient Market critique eg of the Value and Small Cap (and Momentum) effects.

Didn't I ask the same question about selling? And like you asked, "where are the International stocks?" Or is this a US only anomaly?


AFAIK it is not. Yes you asked the same question about selling.

Probably my error was to cite what you posted, rather than just going back to the previous post-- perhaps I was lazy. Apologies.

What I don't really understand about a method like this is the arbitrariness of the numbers used? What makes a 2% dividend relevant? Why isn't 1.8% or 2.2% better? My same lack of understanding applies to the PE and market cap numbers.
[/quote]

What you normally do in running these screens is look at the data and see what, historically, looks like a good dividing line ie one that fits the historic data. Hence the gives about Data Mining etc.

To reiterate, the low volatility anomaly is quite real, and appears to be the key to Warren Buffett's success. Whether it persists now that the academics have discovered it (lots of anomalies like the January Effect disappeared once they were discovered and published-- the most successful quant hedge funds, like Renaissance, *do not* publish what they have discovered about stocks) is an interesting question.

Efficient Market theory does not discount anomalies, it just says you can't make money on *known* anomalies, only unknown ones (ie ones not generally discovered and publicly known). That's more or less where Jack Treynor came down on market efficiency-- there are anomalies out there, but ones you can actually trade on? No.

Value and Small Cap Value remain the anomalies that don't appear to be arbitraged away, but, again, there are very significant implementation issues in running true SCV strategies (liquidity etc.). To do it, DFA actually has to stop being a true 'index' manager (you'd have to call them 'active quant'). The 'bonfire of the quants' in August 2007 also warns us about systemic risk (lots of us pursue that strategy and then it blows up, and there is a crush in the rush for the exit).
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Re: For those who hold individual stocks…

Postby HongKonger » Fri Jan 04, 2013 9:38 am

I buy what I know.
When I worked in aviation and watched the industry every day, I bought airlines.
When I worked with a casino operator and watched the industry every day, I bought casinos.
I buy that which I watch daily and sell when I make a fixed % increase - I apply the Boglehead lack of emotion. I put the profit in my dry powder account ready to dump into my regular index funds, and the initial investment gets redeployed in another single stock purchase.
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Re: For those who hold individual stocks…

Postby STC » Fri Jan 04, 2013 9:58 am

I own some stock from my ESPP. I sell based on my un-scientific view of under/over value, or when the stock hits 2% of my total liquid NW. Right now we are under-valued and I am under 2%... so I am accumulating.

This likely makes no difference to my long term performance, but it fun and keeps me from tinkering with the rest of the portfolio. I also get a 15% discount in my ESPP, so thats good.
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Re: For those who hold individual stocks…

Postby Petrocelli » Fri Jan 04, 2013 10:44 am

bdpb wrote:
..."where are the International stocks?" Or is this a US only anomaly?

What I don't really understand about a method like this is the arbitrariness of the numbers used? What makes a 2% dividend relevant? Why isn't 1.8% or 2.2% better? My same lack of understanding applies to the PE and market cap numbers.


Answering your questions:

1. The international stocks are in my mutual fund portfolio in Vanguard International Growth, International Index and International Explorer.
2. I got the screen from a person who has authored numerous articles on the benefits of adding low-beta stocks to a mutual fund portfolio. His name is Geoff Considine. Google his name for more information. I don't know why he chose 2%.
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