Investment strategy & Plan for portfolio Management
1) At all times maintain a minimum of 10 investments and no more than 20
20 is about the maximum number of companies one can follow, I would never call on a minimum as you could always just buy index to get your stock allocation up to a more acceptable level. I would strongly urge you to listen to the quarterly conference calls to get a feel of the various types of CEO's and CFO's and if you have studied the balance sheets of the companies you will be able to see which ones are blowing smoke and get out of dangerous situations.
2) Ideally diversified across industrial sectors
I utilize only value line stocks and by using their market segments I avoid over concentration in one area
3) Need to provide cash flow
4) No negative equity
5) Avoid total market investments
At times these are helpful, but certainly not necessary
When to buy
1) The company has a good dividend yield at least 2 times 10 year treasuries rate.
In my investments 1) Must be rated in the top 25% of all Value Line stocks for Financial Strength and Safety – Goal is to have 8 of the 13 picks with a Safety Rating of 1
2) Must pay a dividend with a reliable record of dividend growth
3) Price Stability must be in the top 65% of all companies
4) Earnings Predictability must be in the top 65% of all companies
5) Timeliness of 3 or higher with a strong preference to stocks rated 1 or 2. The reason is no one cares what Value Line's financial ratings are and they almost always cut financial ratings far earlier than any other market source because there is no pressure to maintain them
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 -
I utilize 1) Value Line reduces the Financial Strength at all or if Safety falls below 2. A cut in Safety ranking is a strong reason to sell a stock in and of itself but is not automatic.
2) Timeliness rating falls to 4 or lower.
3) Dividend is cut or expected increase unexpectedly does not occur.
The reason for most of the rules is to obtain a dividend stock that no matter what the market is doing will be bringing a dividend home that will grow in excess of inflation. All of the criteria are by using only the Value Line Survey, for myself I always check further by reading the most recent Edgar filings and trying to listen to management on a earnings call to see if their plans sound reasonable.
2) Price appreciates 30% or more take that percentage off the table
This is a bad rule, you need to let winners run, if the outlook is still good, Timeliness or price stability are better indicators
3) Yield drops below 10 year treasuries hopefully from price appreciation
Another rule that does not relate to performance I would eliminate
4) Tangible Equity becomes negative (goodwill backed out)
When to hold
1) Dividend yield is between 2X and 1X 10 year Treasuries
2) Dividend payout ratio is still acceptable
3) No negative equity