Learning about investing is a continuous process. There are several radio programs that are available in digital (MP3) format. These “podcasts” can be downloaded and played at your convenience through a computer or with an MP3 player. Here are several excellent programs.
The Wise Investor Show has been broadcast in the Washington, DC, area for 17 years. The program advocates a conservative, value-oriented approach to investing. The program is always informative and educational. The weekly program can be downloaded from the WMAL.com website. Currently, the program is only archived one week at a time, with the Sunday program becoming available on Monday. The program lasts about 2 hours.
Paul Douglas Boyer, who happens to live near here in Vienna, Virginia, has a blog and a podcast that discusses fun investment topics and reviews the Mad Money recommendations of guru Jim Cramer. His weekly podcast last about 30 minutes and is entertaining and well produced. The program advocates an asset allocation strategy. Both podcasts and model portfolios can be found on the Mad Money Machine.com website.
Jim Cramer is interesting, educational, and, at times, controversial. He has a daily radio program that lasts about 30 minutes. Podcasts for the radio program can be found on the TheStreet.com website. He advocates a trading approach with a small percentage of a portfolio. While his near term trading philosophy differs significantly from an NAIC-approach, he often offers interesting and insightful perspectives. His book Real Money: Sane Investing in an Insane World is well worth reading.
It is easy to become a fan of podcasts. You can find podcasts on many different subjects, not just investing. They allow time shifting. With an inexpensive MP3 player, you can listen to a podcast in the car, while walking, or while exercising. Apple offers a free program called iTunes. It includes a link to a podcast directory maintained by Apple. It can be configured to manage your podcasts by automatically downloading new programs and deleting old ones.
In terms of investment return, we been treading water for most of 2006. The value of a unit in the funds is almost where it was when we started the year. We have an excellent portfolio. Although it is weight more heavily with larger growth stocks.
In general terms, stocks that have consistent increases in earnings and revenue, at a rate faster than the growth of the economy, are characterized as growth stocks. In contrast, stocks with a low price-to-book (P/B) ratio and low price-to earings (P/E) ratio are characterized as value stocks. Mutual funds are frequently characterized as either growth, value, or blend (a combination of growth and value). Mutual funds are further characterized as large, medium, or small capitalization. Market capitalization is simply the number of shares issues time the market price of share of stock.
All of this is a leading up to the observation that large capitalization stocks have not done as well as value stocks. Similarly, growth stocks have not done as well as value stocks, in the last 12 months or so. The Callen Periodic Table of Investing Returns shows how different sectors (large, medium, and small capitalization, and growth, value, and blend) have different returns from year to year.
So what do we do at this point? Stay the course. We have an excellent portfolio, even though it is weighted more heavily in larger growth stocks. As we buy more stocks, we should look for opportunities in smaller stocks, especially smaller growth stocks that are cheaply priced.
You can see how growth, value, and market capitalization interact, using this spreadsheet. The spreadsheet calculates return for a portfolio over the last 15 years based on the asset classes in the portfolio. The S&P 500 is a good surrogate for large capitalization stocks. Similarly, the Russell 2000 is a good proxy for small capitalization stocks.
To compare investment returns, enter a number, e.g., “100″ in the blue column for the asset class you want to examine and “0″ for all others. You can also look at the return of various combination of asset classes. You might find this spreadsheet helpful if you are trying to decide how to allocate long term savings.
After a great deal of research, I see considerable merit in having a substantial amount of core savings allocated among index funds that represent these asset classes. I am paying much closer attention to asset classes. (Moose pond Investors is really a large/medium cap, growth asset class.) Asset allocation might be the subject of a future posting if there is any interest. But for now, the returns of the various asset classes will help explain why the Moose Pond returns have not been stellar this year.
The Wise Investor show (WMAL, Washington, DC) on 06 May 2006 with guest David Teitalbaum discussed mutual funds. Here are some of the more interesting funds. His website at www.moneybalance.com includes back editions of his free newsletters. The following links are for the mutual fund web sites and for the Morningstar analyst summary.
The program also mentioned www.fundalarm.com a free, non-commerical web site that helps to idenitfy when to sell a mutal fund.
Mutual funds can help provide asset class diversification. The following small and mid-cap funds and international funds look interesting. The embedded links are to the funds’ web sites and to the Morningstar summaries (which may require logon to M* to view).
Closed End Funds
Some Open-End Mutual Funds (that don’t suck)
For example, a diversified portfolio might include:
Electronic copies of materials from the class today on stock selection guide judgment skills are available here. The materials include completed stock selection guides and judgment worksheets for INTC, HD, JNJ, MSFT, PFE, and WMT. Since all of these companies are part of the Dow 30, data sheets are available for free at the Value Line website.
More information about educational classes conducted by the D.C Regional Chapter of BetterInvesting can be found on the chapter website.
It is always helpful to compare portfolios. Here are summary dashboards for the NAIC Growth Fund and for the Moose Pond Investors portfolios. The NAIC Growth Fund is a closed end fund that was intended to demonstrate NAIC principles. You can click on either summary below for the complete dashboard.
In the past 6 months NAIC growth fund sold its position in Pepsi and Newell Rubbermaid. The fund added to its positions in Abbot Labs, Carlisle Companies, Jack Henry & Associates, Medtronic, Stryker, and Washington Mutual. The total return for the NAIC Growth Fund in 2005, based on change in net asset value, was 1.3% (slightly ahead of our return of 0.3).
While quality is about the same in both portfolios, the Moose Pond portfolio has higher PAR, higher projected growth, and a higher quality rating. We can probably improve the overall PAR by replacing several of our low PAR companies with higher PAR companies.
We took an initial position in Illinois Tool Works (ITW) yesterday at a price of $84.56. On January 23, we took an initial position in Stryker (SYK) at a price of $45.34.
Another list of stocks worthy of further study is the Morningstar Bellweather 50. This is a watch list of large-cap companies that Morningstar rates with a wide economic moat. Morningstar uses its star ratings to show relative valuations of these stocks. A rating of five stars mean the stock is undervalued. The link above shows projected average return and RQR quality rating for each of these stocks.
One of the challenges when starting a new portfolio or updating an existing one is finding stocks to buy. Here are several public lists of stocks maintained by Manifest Investing. The lists provide both projected average return (PAR) and a quality rating (1-100).
The stock market drop this past week has provided a buying opportunity. Moose Pond has some cash to invest
Proposed Purchases for January
We recently considered several companies: Stryker [SYK], Microsoft [MSFT], and Kohl’s [KSS], and decided to purchase Stryker.
In addition, three defensive stocks look attractive: Coca-Cola [KO], Gannett [GCI], and Illinois Tool Works [ITW]. These stocks have several things in common. Their prices have gone nowhere or down over the past several years even though their earnings are solid and have continued to grow. Comparing their current price earnings ratio (P/E) to their historical P/E, current P/Es are at an all time low. Value Line rates their financial strength A+ or better, and their earnings predictabillity 85 or better. All three stocks pay dividends, which provides some downside price protection. These three stocks are currently out of favor in spite of their fundamentals. All three have a projected average return of more than 13% which is excellent for a large company.
Coca-Cola has an enormous franchise in its name and also has a strong international marketing and distribution network. Gannett, which publishes USA today, has been suffering from rumors of the early demise of print media and the ascendancy of the Internet. Companies like Gannett will be awash with a Tsunami of political cash as we move into the next presidential election cycle. Illinois Tool Works is a 100+ year old tool company that is the clear leader in almost every market in which it sells tools.
Weeding and Feeding the Stock Garden
These are several good, quality stocks whose prospects are not as good as the others in the portfolio. These are Cardinal Health and Brown & Brown. (Harley Davidson and Capital One Financial are borderline on joining that group.) We are considering selling Cardinal Health and Brown & Brown sometime in the next two or three months after the market recovers from its current bounce down. We plan to reinvest the proceeds in several of the stronger existing stocks.
Summary
Here are the proposals: