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Help with my investment strategy II
Old 01-14-2019, 06:47 PM   #1
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Help with my investment strategy II

It appears a few enjoyed the dividend investment strategy outlined. I received some valuable feedback, but due to a computer glitch the thread vaporized.

So the original thoughts were I don't want to nor like ETF/INDEX/Buy the market strategies for my own personal reasons. So I've decided to come up with an investment strategy for my needs, based on fundamental company strength and dividends. It has received some good feedback, and has been streamlined thanks to Valueline, running man, and others.

Basically:
Investment strategy & Plan for portfolio Management

1) At all times maintain a minimum of 10 investments and no more than 20
2) Ideally diversified across industrial sectors
3) Need to provide cash flow
4) No negative equity
5) Avoid total market type investments in flat to declining markets

When to buy

1) The company has a good dividend yield at least as high as the 10 year treasuries rate (pb4uski)
2) The dividend payout ratio is under 50% of Total Cash Flow From Operating Activities (yahoo income statement)
3) Positive equity with a low PE and price to book
When to sell/reduce exposure
1) Long term prospects diminish
2) Price appreciates 30% or more take that percentage off the table (runningman)
3) Yield drops below 10 year treasuries hopefully from price appreciation
4) Tangible Equity becomes negative (goodwill backed out)
5) A) Value Line reduces the Financial Strength at all or if Safety falls below
B) A cut in Safety ranking is a strong reason to sell a stock in and of
itself but is not automatic.
C) Timeliness rating falls to 4 or lower. (thanks RM)
When to hold

1) Dividend yield is still above the 10 year Treasuries
2) Dividend payout ratio is still acceptable
3) No negative equity

What to Buy

1) Large Cap companies 60% (thinking dividend aristocrats diversified among several sectors) Valueline ratings criteria.
2) Small Cap companies 10%
3) International 20%
4) TBILLS/MM/Cash 10%

For what it is worth numbers are hard, investments are risky and working for a living isn't fun. So please help me find a place to store my cheese and escape the rate race.
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Old 01-14-2019, 08:44 PM   #2
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Moderator Note:

As noted, this thread continues the discussion which was begun (with vigor) in a previous thread. That thread has been closed (more for technical reasons than anything else). But it happens the previous thread had grown unnecessarily rancorous in some places, so this is an opportunity to review some points before continuing.

A reminder to all: Let's resolve to keep the discussion productive and civil. If warranted, criticize the idea, not the person who holds it. For those needing a brush-up, the Community Rules are always available via the link in the banner near the bottom of most pages.
A suggestion: The active/passive investment debate is important, and anyone who holds positions in either camp can expect to be challenged (politely ). That exchange turned unfortunately intemperate in the previous thread. As plenty of views on that (both ways) have been expressed already in the last thread, it may make the discussion more productive in this thread if we can move on to other important issues.

Thanks,


samclem, for the moderator team.
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Old 01-14-2019, 09:33 PM   #3
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I have a faint recollection that one needs at least 30 different tickers to be reasonably diversified, and 30 may well be on the low side... so 10 to 20 will add a lot of concentration risk to your portfolio.
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Old 01-14-2019, 09:52 PM   #4
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Uh, so you have lots of computing and brain power to build a model, test it, etc. before you sink money into such a portfolio?
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Old 01-14-2019, 09:54 PM   #5
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Quote:
Originally Posted by pb4uski View Post
I have a faint recollection that one needs at least 30 different tickers to be reasonably diversified, and 30 may well be on the low side... so 10 to 20 will add a lot of concentration risk to your portfolio.
Yes, I was going to post something similar. I would not feel comfortable (at all) having all of my portfolio, or even all of my equity allocation, in just 10 stocks. Or 30. And, though you manifesto says "Ideally diversified across industrial sectors ", the stocks paying attractive dividends are not spread across many industrial sectors. So, your assets will likely be even less diversified than a random selection of 10-30 stocks would be.
This would be a big point for me. And trying to keep up to date on a larger basket of holdings (to include running possible replacements against your selection filters, etc) may just prove to be impractical. I wouldn't want to do it, but people have different ideas of what is fun/rewarding.
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Old 01-15-2019, 03:43 AM   #6
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Luck_Club, For your convenience, below are re-posts from the other thread.

Quote:
Originally Posted by target2019
#12 FYI, a bunch of resources for DGI are mentioned on this page. I have no affiliation with the blog, just mentioning it as starting point for further research on DGI.
https://dgiforthediy.com/resources/
As thread progressed, I got better sense of experience, and you are not starting. I consider myself "starting" and have been picking at the edges of DGI for decade. This was mostly for benefit of aiding my F-I-L, but now takes on new meaning since there is some inheritance involved.
.
.
Quote:
Originally Posted by target2019
#16 To summarize dividend stocks:
The good can go bad
The dividend can be trimmed or eliminated
Buying and selling costs are a drag.
You spend time analyzing and managing, and this has impact on your available time.

But I do get "it" and participate in the challenge with something like 12% of AA.
I now see you are implementing indicators that will help in management. One additional thing, maybe set a time-limit (say two years) wherein you sell if the indicators are not mostly green.
.
.
Quote:
Originally Posted by target2019
#23 Quote:
Originally Posted by Luck_Club View
What I was looking for were suggestions from other investors who use an individual stock and or dividend investing strategy on how I could improve my written plan. Which key ratios should be monitored to A) separate the wheat from the chafe so to speak. B) Are my criteria way off base for what I'm trying to accomplish.
Some framework can be found here:
https://www.cfainstitute.org/-/media...GBJ1M_eKALLxxi

I use VWELX as a benchmark for results.
On second thought, one of the High Div ETFs mentioned mentioned in the closed thread are probably better bench marks. The 400 company list in VYM is a good mining spot, like VWELX individual companies.
.
.
#61 ESRwannabe posted this:
Quote:
You might find this useful:

https://www.dividendinvestor.com/pre...distributions/

They keep a list of all the preferred stocks with qualified dividends. You could build a nice higher yield portfolio with that as a piece of it. Also muni bond CEFs are nice. I like the ETF XMPT which you could also just use as a CEF screener and pick individual ones out of it opportunistically.
Luck_Club, are you including anything about taxes in your IPS? For example, CSCO (as one example) may be a borderline choice according to your factors. In our case, the qualified dividend has some extra oomph, if I compare it to other non-qualified stocks.
.
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Last point is mention of The Chowder Rule. You may be familiar. If not, this link is a good read.
https://www.suredividend.com/the-cho...ule-explained/
That article brought to mind that some use earnings growth as opposed to dividend growth. Come to think of it, both are important, but E is where things start.

Extra TIP: If you put your trades in a Morningstar portfolio (free) it may help in analysis. Come to think of it, there are also M* forums where topics can be freely discussed. You still get trolls, but they are usually moderated out of the discussion.
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Old 01-15-2019, 09:22 AM   #7
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Quote:
Originally Posted by samclem View Post
Yes, I was going to post something similar. I would not feel comfortable (at all) having all of my portfolio, or even all of my equity allocation, in just 10 stocks. Or 30. And, though you manifesto says "Ideally diversified across industrial sectors ", the stocks paying attractive dividends are not spread across many industrial sectors. So, your assets will likely be even less diversified than a random selection of 10-30 stocks would be.
This would be a big point for me. And trying to keep up to date on a larger basket of holdings (to include running possible replacements against your selection filters, etc) may just prove to be impractical. I wouldn't want to do it, but people have different ideas of what is fun/rewarding.

Agreed... I just added up all my combined ETF and Index funds (along with my 3 individual equities AAPL, MMM and HAS).


I have over 4,050 different equity positions amoungst my 5 ETFs, 3 Equities and an index. I sleep well at night with a 99% Stock allocation knowing how well diversified I am into the equities market.
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Old 01-15-2019, 10:51 AM   #8
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Luck_Club,

My recommendation is to use ETF/funds as a screening tool. There are probably ETFs out there that match your criteria to a degree. Find those and then look at the constituents individually to pick out the ones that further meet your filters.

I suggest this because otherwise it can be hard to know where to start when looking at foreign or US small cap stocks. Its easy with large cap US as most people are familiar with those companies.
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Old 01-15-2019, 10:55 AM   #9
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FYI, here is a list of dividend aristocrats which is kept current:

https://en.wikipedia.org/wiki/S%26P_...nd_Aristocrats


EDIT:

I know you don't want indexes, but here is one you might want to keep on your radar. I think its pretty neat and unique.

https://www.cboevestetfs.com/#/

"Traditionally, investors seek to meet their income needs through fixed coupon investments such as bonds. However, bonds can struggle to deliver when yields are low, inflation erodes principal, or when interest rates rise (driving down bond prices).

KNG ETF offers an innovative approach that aims to combine income from two unique sources: dividends from stocks and premium income from stock options. It does so while seeking to retain the majority of the inflation-beating growth characteristics of stocks."

"Within dividend-paying equities, investors face a trade-off between the level of income and quality of stocks as measured by their returns and volatility.

High dividend stocks (such as the Dow Jones U.S. Select Dividend Index) pay higher-than-average dividends, but they have historically delivered lower total returns with higher volatility.

Dividend grower stocks (such as the S&P 500 Dividend Aristocrats Index) focus on consistently increasing their dividends over time and deliver higher-than-average total returns and lower volatility, but with lower dividend yields.

KNG ETF seeks to solve this dilemma by selecting the higher-quality dividend grower stocks and selling call options on some of the stock holdings to generate additional income."
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Old 01-15-2019, 12:07 PM   #10
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Quote:
Originally Posted by pb4uski View Post
I have a faint recollection that one needs at least 30 different tickers to be reasonably diversified, and 30 may well be on the low side... so 10 to 20 will add a lot of concentration risk to your portfolio.
One thing I think a lot of people forget is that the cap weighting of an S&P 500 index fund means you have a lot less diversification that you would think at first glance.

Microsoft, Apple, and Amazon make up about 10% of the S&P500. The top 100 stocks make up about 2/3's of the index's value. The stocks in the bottom half of the index are only 13% of its value. How much diversification are those bottom half stocks really providing?
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Old 01-15-2019, 12:19 PM   #11
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Quote:
Originally Posted by ESRwannabe View Post
EDIT:

I know you don't want indexes, but here is one you might want to keep on your radar. I think its pretty neat and unique.

" . . . KNG ETF offers an innovative approach that aims to combine income from two unique sources: dividends from stocks and premium income from stock options. It does so while seeking to retain the majority of the inflation-beating growth characteristics of stocks."
Well, it's certainly no index, it's just another actively-managed ETF.
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Old 01-15-2019, 12:37 PM   #12
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Well, it's certainly no index, it's just another actively-managed ETF.
On their website they claim it is an index the Cboe S&P 500 Dividend Aristocrats Target Income Index Monthly Series and benchmark themselves against MSCI USA Large Cap Index .

I do not have an opinion one way or the other but it is tracking one of the 3.3 million indexes in the world.
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Old 01-15-2019, 12:40 PM   #13
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One thing I think a lot of people forget is that the cap weighting of an S&P 500 index fund means you have a lot less diversification that you would think at first glance.

Microsoft, Apple, and Amazon make up about 10% of the S&P500. The top 100 stocks make up about 2/3's of the index's value. The stocks in the bottom half of the index are only 13% of its value. How much diversification are those bottom half stocks really providing?
The biggest helper is when one of the bottom companies grow you are able to have that automatically in your portfolio as it starts making an impact on the economy. None of the 3 you mentioned was in the S&P500 40 years ago. A bigger concern would be if the economy were to fundamentally change to no longer favor large companies and instead favor smaller companies somehow so that the S&P 500 was less relevant or that the growth in the economy was only occurring in small companies that never become large.
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Old 01-15-2019, 04:20 PM   #14
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OP (that's you, Luck_Club).

I may have missed this, but: are you completely abandoning the idea of investing in MF's and ETF's? Where is the money coming from to fund your individual stock ideas?
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Old 01-15-2019, 06:14 PM   #15
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Quote:
Originally Posted by Running_Man View Post
On their website they claim it is an index the Cboe S&P 500 Dividend Aristocrats Target Income Index Monthly Series and benchmark themselves against MSCI USA Large Cap Index .

I do not have an opinion one way or the other but it is tracking one of the 3.3 million indexes in the world.
To call this an "index fund" is quite a stretch. This "index" is nothing more than the list of stocks that they picked themselves from the S&P 500 (specifically, equities with a history of paying dividends) just for this KNG ETF. To call this an "index ETF" just shows that "indexing" is now a useful marketing term.
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Old 01-16-2019, 09:19 AM   #16
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To call this an "index fund" is quite a stretch. This "index" is nothing more than the list of stocks that they picked themselves from the S&P 500 (specifically, equities with a history of paying dividends) just for this KNG ETF. To call this an "index ETF" just shows that "indexing" is now a useful marketing term.
Isn't the S&P 500 just a list of stocks someone else picks and periodically changes?
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