Monday, March 24, 2014

Let's Talk about Investment Strategy: Part 2

I was away on vacation and am about to launch into a house renovation which will mess up 4 out of the 7 rooms in my house, including the computer room.  What this means is that I have very little time to write/draw.

So, fun pictures will be back next week.  This week is a summary of stock spreadsheets and how they are fun.

My parents have owned mutual funds for as long as I can remember.  When I was a kid, I remember that every so often, my mother would take the newspaper and flip to the financial section.  Instead of articles, this section held tiny printed columns of numbers, codes and arrows.  She would carefully highlight a few lines and then enter them into her blue financial tracking book, later her computerized financial software.

This was, obviously, the Before Common Internet Era (~10 BCIE).

At that time, picking your own stocks was considered Very Hard.  Really, it was a full time job involving printed reports and squinting at tiny numbers on a printed page.

We are now in the Common Internet Era.  What took my mother 45 minutes, I can get instantly through any number of internet-based portfolio trackers.

(Which internet-based portfolio trackers?  I use Google Finance.  If you have an online brokerage account, you log in and it will also tell give you the information.  There are other online trackers, but I don't use them and don't want to accidentally refer anyone to a scam.)

Company information and historical data that would formerly have required a trip to the library is easily obtained through numerous websites.  I use a collection of the following:
- Google Finance
- Yahoo Finance
- MSN Money
- Reuters

Then what?  I'll recap Part 1 (link), where I outlined how stock picking is mostly an exercise in narrowing down the field.

Let's break it down:
1 - Reduce the playing field.  Only buy stocks that give dividends.
2 - Reduce the playing field more.  Only buy stocks that have given dividends consistently over a period of time.

Where do you find a list of stocks that give dividends consistently over a long period of time?  There are lots of places.
The Canadian Dividend Aristocrats List
The Canadian Dividend All-Star List
The American Dividend Aristocrats List
The American Dividend Champions List

3 - Make a list.  List all of the stocks that meet the conditions above.4 - Analyze the list.  Download relevant stock information about each of the stocks on the list.
 What can you use to make such a list?

- Excel: this link tells you how to look up data on stocks automatically in Excel using "SMF Add-In"
- Google Drive documents: this link tells you how to download stock information.

5 - Compare and contrast.  Use a ranking system to give all the stocks a score.6 - Narrow the field even more.  Using the ranking system, find the top 10% scores.
How might you compare and contrast the stocks?  I use Google Docs.  Here is an example of the spreadsheet that I use:
- For US stocks, based on the American Dividend Champions List (link)
- For Canadian stocks, based on an amalgamation of a whole bunch of lists (link)

How they work:
- The "Sorted Ranking" tab lists the stocks in order of total score, based on the ranking system.
- The rankings are based on a number of different metrics (which I revise occasionally).  I'll talk more about various metrics later, and what they mean.
- The metrics are each weighted individually based on what I happen to think is important at any given time.  (If you're curious, you can find this ranking on the "Ranking" tab)

Note: The 'number 1' position is not necessarily the one that I buy, I usually stick within the top 10%, but sometimes I don't even do that.  I reserve the right to be waffle.

I also can't promise to keep the sheets updated on a regular basis, though I update the title whenever I do update them.  I'd encourage you to make a copy of either sheet and then play with the stock selection, the metrics and the rankings to suit your own fancy.


7 - Pick.  Decide which of the stocks in the top 10% is the most interesting.
8 - Buy.  Buy as much as possible.
Once you've narrowed it down this far, for me the final cut is a gut decision.
9 - Never sell.  But, if a stock lowers or cuts its dividend, sell it. 
That's it for now.  Hopefully I've given you some stuff to chew on while I'm trying to squeeze four rooms of furniture into my kitchen/dining room.

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Please realize that "Let's Talk Investing" is not authored by a financial planner, adviser, or a professional investor in any capacity. As such, this is not expert advice in legal, taxation, financial, or any type of information that may be provided. The reader must realize this when reading these articles and must not rely on them as the ultimate source of information but must seek proper verification from the appropriate professionals before acting on any of this information.

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