Reader’s proposal for pretend portfolio

  • Investment ideas: a reader’s proposed portfolio, showing buying targets and companies to research as well as stocks owned

    Investment ideas: a reader’s proposed portfolio, showing buying targets and companies to research as well as stocks owned


Part four of the of the Moneywise Pretend Portfolio Project.

The new year is here! The old year is ancient history in the global finance investment world, one that may pause, but never stops.

The S&P 500 Index ended 2019 up 28.9 per cent, its best year since 2013. The S&P is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. Founded in March 1957, its market capitalisation now stands at $25.6 trillion (as of June 28, 2019).

After such a good performance year, should small investors think about investing in stocks?

One very brave Royal Gazette reader thinks it’s a good time to start investing and has submitted her individual pretend portfolio for our discussion, analysis, monitoring, and enlightenment for the entire 2020 financial year. Our Reader Pretend Portfolio will be featured every other month. See chart illustration.

Her portfolio is definitely a work-in-progress. She owns three positions, is thinking for buying four more (three local, one foreign) and wants to understand the operations and possibilities of the final five. An interesting combination of technology, healthcare and food services — all vitally important to Bermuda islanders and elsewhere.

Readers, we want your comments on this portfolio. We are looking to provide input on all of these selections and welcome comments from any readers who own or are interested in these stocks. All information sent to me at martha.myron@gmail.com is and will always remain anonymous.

How do you select a company’s stock for investment? After all, we certainly know how to buy a favourite company’s products or services that provide substance and sustenance, but probably are only subliminally aware of the subtle, sometimes, dominant influences that many companies’ have on our every day consumerism.

However, are those influences enough to consider investing in those companies?

Let’s view Moneywise’s Stock Selection Checklist that can help you in the selection process.

Company X and its track record

Company profile

How many years in operation?

Incorporated when? Longevity in an innovative and profitable company is very important.

Initial share price? You’ll be surprised at how vast the appreciation has been on some company stock. Berkshire Hathaway’s stock appreciation is a legend in its own time — stock market value now $342,261 a share!

Who is the management team?

How consistent is their tenure?

How often is management and employee turnover? Unhappy employees do not a successful company make.

What does the company produce. Do you understand the company’s product and forward planning?

What type of industry? Advancing, stagnant, declining?

What are their corporate governance ratings, eg audit, 5; board, 3; shareholder rights, 3; compensation, 3.

These scores indicate decile rank in index or region with a score of one indicating the lowest governance risk to ten being the highest risk. Exacting corporate governance controls corruptions and irresponsible operating mandates.

Does the company meet your socially conscious criteria?

Financials

What was the increase in market value for 2019? The market ended on a high note last year. Did your company selection follow suit?

How does your company selection compare against like-type companies for the following as in better, worse, or stable?

Rate of return for the last five, ten, 20 years?

Income statement.

Consistent increase in revenue each year?

Earnings per share stable and/or increasing?

Balance sheet: cash and cash equivalents available; total liabilities — short-term debt, long-term debt.

Debt to asset ratio — enough assets to satisfy all debts in a liquidation?

Debt compared to stockholders equity?

Does company pay dividends?

How often and consistently for how many years? Analyst criteria looks at consistently and longevity of dividend payments as evidence of earnings and operations stability.

What is the dividend payout ratio? Dividends are paid out against retained earnings each year if agreed by the board. A payout ratio of 50 per cent means that 50 per cent of retained earnings is kept to fund future innovation, growth, and new infrastructure. A dividend payout ratio of 90 per cent, or in one case I researched, the ratio was 130 per cent, meaning that none of the net income was retained for the future (not good). The company may have even borrowed money to pay dividends! Again, not good!

Statement of cash flows: what is free cashflow amount? Is it positive or negative?

How much is spent on buying back company stock? Moneywise has reservations about this practice.

Statistics and industry average comparison

What is the bottom line profit margin? Does it meet or exceed industry average. How was the profit achieved? Constant cost cutting or excellent products/services?

Return on equity?

Price to book?

Price to earnings ratio?

Short ratio? Amount of shares shorted?

Percentage of shares held by corporate insiders

Percentage of insider trading selling to buying?

Percentage of shares held by financial institutions?

What type (and size) of financial institutions’ portfolio managers are purchasing the stock for their mutual funds and other-type allocations?

What are the analysts recommendations? Sell, buy, hold?

How does the company performance and its stock market value compare to others in its peer group?

Answers will be addressed as we develop this year-long project!

One very good research website for your company screening data is Yahoo Finance on a global basis: links for US, UK, Canada, Germany, Australia, below. There are more Yahoo finance country websites. Just search!

Note some other country stocks may need more research to establish comfortability with the investment.

A good place to start your selection process is the company’s audited financial statements and notes to the financial statements. Future articles in this series will walk readers through how to read a corporate financial statement, compare results against other companies and more.

Bonds and money market mutual funds will be featured in February 2020.

US https://finance.yahoo.com/screener/

UK https://uk.finance.yahoo.com/

Canada https://ca.finance.yahoo.com/

Germany https://de.yahoo.com/

Australia https://au.finance.yahoo.com/

References

A Beginners’ Guide to Managing Your Money, Investopedia, Investing Essentials,

https://tinyurl.com/yx2jjvhl

Stock market ends 2019 on a high note as Wall Street closes out a banner year, Chris Matthews, Marketwatch, December 31, 2019, https://tinyurl.com/wmjphsv

Martha Harris Myron CPA, CFP, JSM: Masters of Law — international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Finance columnist to The Royal Gazette, Bermuda. Contact: martha.myron@gmail.com

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Published Jan 4, 2020 at 8:00 am (Updated Jan 4, 2020 at 12:05 am)

Reader’s proposal for pretend portfolio

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