performances with different strategies

I'm working on different portfolio and using different investment strategie to check if the "gurus" that speak of stellar performance could be followed by a normal investor using databases easily available .
First check : DOGS . The companies with higher dividend yield should perform better .
I got 3 indexes and compared with DJSelDividend 30 (European stocks choosen by DJ for their high and regular dividend yield) and DJGlobalSelDividend100(Global stocks choosen with the same approach)
Year to date and 1 year time results:
DJStoxx50 : - 46,24% ; -44,17%
DJStoxx600 : -48,11 % ; -45,94%
DJSelDiv30 : -62,14% ; -60,94 %
DJStoxx Global 1800 : -40,85% ; -38,23 %
DJ Global SelDiv100 : - 52,75% ; -50,89% .
DOGS underperforming 12% and more.
Second check : Haugen / Greenblatt "simplified" (scoring 10 DJindustrial - 13 EUStoxx50 - 10 S&PMIB stocks with better combination of P/E and ROE , and modifying the portfolio each month to have the better 10 - 13 - 10 in ).
The results between july and november :
DJI .Portfolio underperformed DJI of 7%
EUStoxx50. Portfolio underperformed EUStoxx 8%
SPMIB. Portfolio overperformed SPMIB 7% .
Third check :Greenblatt / Finanze.net (a site where the method is the same , but are also included european stocks)
With Greenblatt I started since april 2008 "buying " 6 stocks each quarter . At the end of september had 12 stocks and underperformed S&P500 5% .
With Finanze.net I started since August "buying " 6 stocks each quarter . At the end of october I had 6 stocks underperforming DJStoxxE50 7%.

Stocks bought and sold

I sold Amlin , Boliden , Bulgari and bought Zurich Financial Services , McDonald's and Philips.
I also made a little addition to my position on ETF Emerging Markets.

Stocks choices

Today I have updated my portfolio.
I sold the worst 2 stocks in my portfolio and bought 2 stocks that were the best ( considering the equilibrium of my position in the market) .
Sold Swisscom and Italcementi preferred , bought KPN , Buzzi preferred and a little bit of an ETF on Emerging markets.

My choices

Yesterday I continued with my strategy.
I sold Unipol preferred I had in my portfolio and , with the the revenues , I bought Occidental Petroleum .
The very high volatility suggested told me to avoid to continue with other swaps . I'll riconsider it next month.

stocks bought and sold

I made a limited increase in my position on Emerging markets

Stocks bought and sold

Today I sold Dow and Corio , and bought Petro-canada and ArceloMittal.

Stocks to buy and my portfolio

Here's a list of the best positioned stocks . My caveats remain valid .
Porsche , Antofagasta ,occidental , exxon , nucor ,boliden , shell , ensco , arcelor mittal , omv , chevron , bp , eni , conocophillips .
As you can notice they are oil or basic materials . I wouldn't like to remain so committed on 2 industries only.

My portfolio is :
idearc, porsche , boliden , shell , eni , voestalpine , drax , southern copper , amlin , nokia , vallourec , randstad , microsoft , belgacom , swisscom , astrazeneca , c&c group ,basf , allied irish banks , italcementi risparmio , 3m , vivendi , cal dive , unipol priv , wienerberger , inditex , telecom italia risp , dow chemical , corio .

Next days I'll make some changes.

Stocks to buy

Let's see what can we buy
Barratt : P/E below 5 , too risky.
Antofagasta . Good stock , but I have other other firms like that in my portfolio.
Boliden . I have it in my portfolio .
Hennes & Mauritz. Good but with P/E more than 15.
Drax . Revenues and profits steady . A possible danger from taxation . I have it .
Amlin . Revenues and profits a little declining but with satisfactory returns . I need an insurance company in my portfolio.
Southerm Copper - Revenues and profits staeady. Good yield . I prefer it because I want to invest more in USA.
Ensco , Exxon , Occidental , Chevron . Good stocks . But I have other oil companies in my portfolio.
Microsoft . Revnues and profits in slow growth . I have it.
Porsche . Revenue and profits steady . Could be dangerous for its commitment to buy Volkswagen . I buy it.
Nokia . Good growthi . In my portfolio .
Randstad .Recently allowed to merge with another company and then more risky . I need a service company in my portfolio.
Bhp Billiton . A little riskier than Antofagasta . Same conclusion.
Glaxo . Good , but with Debt/Equity too high.
Nobel Biocare . P/E greater than 15 . I wait
Inditex . Revenues and profits growing .I need a distribution company .
Bugari . Revenues and profits steady . i need a luxury company for my portfolio.

Microsoft down?

Microsoft posted quarterly eps to 0.46 instead of 0.47 consensus , and stated 2.12 eps for next year instead of 2.17 consensus .
And shares are hit down , with alarmed comments .

Aren't we too much influenced by so called independent advisors and experts ? Shouldn't we look better at the fundamentals if investing is not becoming like betting?

performances at July 1st 2008

Since the beginning of the year the performance of my stock portfolio are -13,45 % ( - 11,89 % if we consider the dividends ) vs. -23,02 % of the DJEuro 50 , - 17,76 % of S&P500 ( if we would consider the USD devaluation , the performance would be weaker ) , -27,6 % of DJEuro Sel Dividend 30.

to buy or not to buy?

No good news from last week .
Let's wait and see again.......

To buy or not to buy?

This is the question.
You should , if you want to follow the strategy .
I sold the stocks I wanted to , and bought 2 USA stocks , because I plan to increase the share of USA stocks in my portfolio.
I didn't start buying european stocks because I ' d like to see some positive signals.

Stocks choices USA

Look at yesterday 's foreword .
ROA : Southern Copper , Ensco , Exxon , Occiedental , Chevron , Microsoft , Nucor , Marathon Oil , Teck Cominco , 3M
ROE : Boeing , Southern Copper , Exxon , Caterpillar , Chevron , Microsoft Occidental , Marathon Oil , Ensco , IBM , 3M

Stocks pick up - Europe non Euro

Yesterday's foreword and conclusions are still valid .
I add that I'm going to buy three of the listed stocks , also because I can have some of them in my actual portfolio .
Based on ROA : Barratt , Antofagasta , Boliden , Hennes & Mauritz , Drax , Amlin.
Based on ROE : Barratt , Drax , Amlin , Boliden , Cattle's , Glaxo.
Today the risks are not lower than yesterday .........

Stocks pick up - Euro

Now we need to pick-up the stocks .
I don't consider stocks with dividend yield less than 2 % , P/E greater than 15 , Debt/ Equity greater than 0,5.
Then I consider the trend ( I don't buy stocks close to the top of the year ) and the portfolio composition ( I try to have stocks of all the sectors , underweighting those I see with worse next financial year . Therefore , if the best ones don't match with the equilibrium , I go downward ).
Keeping that in mind , the best ones seem to be :
- if you like ROA : Porsche , Nokia , Randstad , Shell , Vallourec , Eni , Salzgitter
- if like ROE : Porsche , Nokia , Bank of Ireland , Randstad , Ing , Irish Life and Permanent
Now is up to you and your strategies : how many stocks you want to buy etc.... , and if you want to take the risks ( very high at least until yearend) .
In the next days the other pick up lists .

Europe stocks - List at June end

The lists , by

ROA - Hennes & Mauriz , Antofagasta , Hays , Nobel Biocare , BHP Billiton , Drax , Next , Glaxo , Reckitt Benckiser , Boliden , Astrazeneca , Anglo American , Capita , Centrica , Amlin , Swisscom , OMV , BP , Diageo ,Statoil

ROE - Next , Hays , Drax , Hennes & Mauriz , Glaxo , Centrica , Capita , Nobel Biocare , BHP Billiton , Reckitt , Astrazeneca , Swisscom , Antofagasta , BT Group , Diageo , Amlin , National Grid , Scottish & Southern , Lloyds TSB , Boliden

USA Stocks - List at June end

The lists , by :

ROA - BP Prudhoe Bay , Terra Nitrogen , Southern Copper , Idearc , Microsoft , Ensco , Herbalife , Exxon , Seagate Technologies , Rockwelle Collins , Occidental , 3M , Nucor , Johnson & Johnson , Coca Cola , Teck Cominco , Chevron , Intel

ROE - BP Prudhoe , Terra , Herbalife , Southern Copper , Microsoft , Caterpillar ,Rockwell Collins , IBM , Exxon , Seagate Technologies , Sotheby's , 3M , Manitowoc , Coca Cola , Terex , Nucor , Ensco

Euro stocks - new list at end June

The lists , updated at yesterday (excluding stocks with dividend yield less than 2 :
ROA - Nokia , Porsche , Vallourec , Inditex , Tenaris , Bulgari , Shell , Belgacom , KPN , Unilever , Recordati , Randstad , Eni , Total , C&C Group , Corio , Buzzi , Mediaset , Dyckerhoff , Saras , Basf , Voestalpine , Vivendi , Philips , Man , Luxottica , Saipem , Wereldhave , Boskalis , Lvmh , Inbev Schneider , Kesko , Repsol , Wienerberger , Sanofi , france Telecom , Outokumpu , Italcementi , Lafarge.
ROE - Nokia , KPN , Porsche , Saipem , Unilever , Randstad , Vallourec , Belgacom , Inditex , Total , Boskalis , Shell , Man , Tenaris , BBVA , Bank of Ireland , ENI , ING , Saras , Thyssenkrupp , C&C Group , Buzzi , France Telecom , Basf , Voestalpine , Recordati , Dyckerhoff , Bulgari , Philips , RWE , Lufthansa , Corio , Mediaset , Luxottica , Lvmh , Carrefour , Repsol . Schneider , Inbev , Kesko

performances at June 1st 2008

From Jan 1st to Jun 1st , the performances of my portfolio , excluding dividends ,  were :

- 6,15 % vs -12,93% of DJEurostoxx50 , -9,76 of S&P500 , - 14,02 % of DJEuroselectDividend 30 .

stocks choices EURO (2)

One criterion for selection is P/E . Let's take 15 as the maximum allowed .

For ROA list we should take care of : 

SAP , Tenaris , Corio , Unilever , Philips , C&C , Reed , Wereldhave , Luxottica , Saipem ,  LVMH . By beginning of July we'll need to check again if they are all above 15 or not

Stocks choices Europe non EURO

We know we want to buy 5 of them in the year . Again let's limit the list to 15 by ROE and 15 by ROA .

ROA: Antofagasta , BHP Billiton , Drax , Glaxo , Reckitt , Astrazeneca , Boliden , Anglo American , Centrica , Swisscom , BP , Diageo , Amlin , Statoil , OMV .

ROE: Drax , Glaxo , Centrica , BHP Billiton , Antofagasta , Reckitt , Swisscom , Astrazeneca , Diageo , BT Group , National Grid , Amlin , Scottish & Southern , Lloyds TSB , Boliden .

Next times we'll find more more infos .

Stocks choices USD

We have to repeate the same exercise for USD stocks . 

We want to buy 5  stocks in the year and therefore can limit the sample to 15 stocks . 

Again in ROE  and ROA decreasing order .

ROE : BP Prudhoe , Boeing , Southern Copper , Freeport Mc Moran , Microsoft , Caterpillar , IBM , Exxon , 3M , Coca Cola , Dupont , Nucor , Pfizer , Ensco .

ROA : BP Prudhoe , Southern Copper , Idearc , Microsoft , Ensco , Exxon , Nucor , Coca Cola , Freeport Mc Moran , 3M , Johnson & Johnson , Teck Cominco , Intel , Chevron , Mattel.

Again , we need to have a closer look at each of them , and then wait until beginning of July .

Stocks choices Euro

July is near and we must start with the selection . Let's begin with the Euro ones . If we plan to buy 20 Euro stocks in the year then we should need to have at least 40 in a selection list .

Let's select them by ROA . I identified :

Nokia , Porsche , Vallourec , Sap , Tenaris , Belgacom , Bulgari , Shell , Recordati , Kpn , Eni , Corio , Unilever , Philips , Total , Mediaset , C&C Group , Buzzi , Reed , Saras , Arcelor , Basf , Voestalpine , Vivendi , Telefonica , Wereldhave , Luxottica , Saipem , Man , Lvmh , Schneider , Kesko , Wienerberger , Repsol , Lafarge , Sanofi , France Telecom , Outokumpu , Italcementi .

And now , let's do it by ROE , to avoid to loose the sectors I mentioned time ago .

Kpn , Porsche , Nokia , Telefonica , Vallourec , Belgacom , Reed , Unilever , Total , Tenaris , RWE , Sap, Man , Shell , Philips , Banco Popolare , Bank of Ireland , Carrefour , Bbva , Eni , Danone , Ing , Voestalpine , Saipem , Saras , Kesko , C&C Group , Recordati , Buzzi , France Telecom , Basf , Fortis , Deutsche Bank , Allied Irish Bank , Arcelor , Luxottica , Corio , Societe Generale , Terna .

For the final choice we should wait until the beginning of July , because the stocks prices could have fluctuations . In the meantime we should look closer at them to see if they have always been profitable , the dividends they distributed , the Debt/Equity ratio , the most recent news related to each of them .

Financial Times - Inflation , oil and impact on stocks prices

In this article and in The Economist (Double , double and oil trouble) we see that:

• ECB is not seen to cut interest rate until yearend
• oil demand for OECD coutries are falling since 2006
• China , seen as one of the most relevant oil buyer , really increased the demand in the first quarter of 2008 but to create oil stocks to avoid any shortages during Olympics
• in 2007 world demand increased only by 0,5%.

If oil prices would drop , inflationary pressure would diminish and then ECB could cut interest rate.

There is a correlation between rates and P/E : the lower the first , the higher the seconds .

Can we forecast growing stocks prices for the next year ?

Economist - Societe Generale

SocGen could become a good target.

Financial Times - Sovereign funds

Money is available and for unpredictable investments .

Spreadsheet creation (2)

Did somebody try to create his own spreasheet ?

I actually own 30 stocks and invest every 2 months , with some exceptions . 

I do it only for Europe and US , and buy ETF for Asia - Emerging markets - commodities . 

My next time for investing will be the beginning of July .

My year to date performance at May 1st was - 8,46% , vs -11,85 DJEurostoxx , - 11,96 DJEuro Select Dividend 30 , - 9,73 S&P500 (with USD depretiation not considered , of course) .

We have more than 1 month time to decide what to buy.

My first choice was based on ROA , but I didn't forget ROE because I didn't want to totally miss banks , insurance , utilities ......

As a matter of fact I have 6 worksheets :

- Euro - ROA

- Europe - ROA

- US - ROA

- Euro - ROE , etc. 

Financial Times - Appetite for risk

Click on the header to read the news.

You can be made crazy with the indices : somebody says , supported by past data (which , as you know , cannot give you the assurance that the future will be in the way) tha when VIX becomes too much optimistic you should sell .

So what to do ? Wait and see until the end of june 

Financial Times

Click on the header to access the news.

The sharp deceleration of services , eurozone inflation approaching 4 % , the composite eurozone purchasing managers index declining to 51,1 from 51,9 but still above 50 . 

Still doubts of a cut of ECB interest rates due to oil prices .

Wall Street Journal

Click on the header to access the news.

Interesting to see the acceleration of home price decline , the gloomier FED's forecast to be associate with the comments from Trichet , the demand for silver dollars and the cars demand drop to '90 levels

Banks and Hi-Tech

Interesting to see how much banks have lost ground .

Will Hi-Tech get the leadership ? Banks are very big H-T buyers .....

Spreadsheet creation

The sources where to find the data are mentioned on "preferred sources" .

I suggest to prepare some spreadsheets : 1 for EURO , another for Europe non Euro , 1 for US .

In each row : name ,  actual price ,  last yearly dividend ,  dividend yield ,  the last earning per share , P/E , ROE , ROA , forecasted EPS and following FP/E , ROE TTM , ROA TTM .  

Yahoo is more useful for european stocks , Bloomberg for US , Google provides with ROE and ROA actual and TTM .

Investment strategies (7)

Let's find the sources for our research.

Euronext : 308 components , more than 1 bn € capitalisation , listed in Paris , Bruxelles , Amsterdam , Lisbon ; otherwise we can choose the bigges firms listed in CAC40 , BEL20 , AEX , PSI20.

Dax30

S&PMIB

FTSE100

Eurostoxx50

Magic Formula Investing . For Europe the site is not ready . A blogger is doing a simulation job : look at www.investingeuro.blogspot.com .

Bloomberg for DJIndustial.

Stoxx for Select dividend 30 (Euro and non Euro) and Select dividend 40 (America) .

We need now to make some choice . Some criteria : a long history , a minimum dividend yield , a maximum Debt/Equity ratio , a minimum capitalisation .

Bloomberg news

It's interesting for several reasons : shows the performance of a "professional" , what's the average of the portfolio invested in stocks and that a big player started in early April to invest more in stocks . 

Investment strategies (6)

Let's start building our portfolio .

Let's say that we will invest the amount of money that we believe we won't need for next 3-5 years .

Let's suppose that we will have 500.000 € : 60% in EUROZONE , 20 % Europe non Euro , 20 % USA (I'm investing on Emerging Countries , as well as Commodities , thru ETF ).

If we plan to invest on 30 stocks every 2 months , each time we ' ll buy 3 EURO , 1 Europe , 1 USA.

For Europe we can find the candidates :

- EUROSTOXX50 , DAX , EURONEXT , S&PMIB 

- Magic formula investing for Europe 

- DJ EURO STOXX Select Dividend 30 , DJ STOXX Select Dividend 30

For USA :

- DJIndustrial

- Magic Formula Investing

- DJ Stoxx Americas Select Dividend 40

Let's establish some parameters for choice : maximum P/E (15) , maximum Debt/Equity ratio (50%) , minimum dividend yield (2%) . We're always free to make exceptions ..... 

Investment strategies (5)

We could also consider listing hystory of the stock . If you are to avoid too much stress , then look at Companies with a long and positive history .

Can we summarize ?

a ) Establish the number Companies you want to buy , the total amount you want to invest ; keep in mind that for every transaction you pay fees , and they influence the yield of your transactions.  

b) Divide this amount by four  or by six if you want to invest quarterly or every two months : if you want to invest 200.000 € every quarter and have a portfolio of 20 companies , you'd buy 5 per each qtr and spend 50.000 € each time .

c) Do you want to invest only in EURO or all over the world? Do you want to have a portfolio diversified by Geography , Currency , Industry ? If you want to operate with different currencies then you need to decide if you want to face the exhange rate fluctuations or not . If you focus only on a few industries you are more subject to economic trends .

d) After 1 year you'll sell the 5 stocks you boughtone year before and buy another five .

Said that , we can always tolerate exceptions ....

Investment strategies (4)

We are saying that for "ordinary" people it's better to invest in stocks that , even if dropping 2/3 , do not crete too much panic. 

Stocks with high ( and possibly growing) dividend yield are very reassuring for an anxious investor : at least he could get the dividend ( but remember that the European Nordic Countries , Switzerland and France  have a tax rate considerably higher than others). 

On the other side the "big payer" can have some weakness to take care of : could be that they don't have better way to invest the money they make , or that they  keep the yield high to  "artificially" sustain the stock price , etc.

Another important element is the profitability . Haugen and Grenblatt insist on this factor which can be measured in many ways : profit margin , ROE , ROA , ..... Keep in mind that the choice to use one instead of another index , drives the choice of the industry where you are going to buy : i.e. if you use ROA you're excluding financial services and most of utilities.

Which data you should use to make your choice ? I mean : let' s suppose that you use P/E and ROE , but they are based on the results of the previous year . If this could be "suitable" if you buy in the second or third quarter , is it the same when you are in the fourth quarter ? Would it be better if you look at the forecast P/E  and/or the ROE TTM ?

Investment strategies (3)

Many methods are available for choosing the right stock at the lowest price. No one of them makes all the details available : we know or can guess some of the parameters (as said in a previous post ) but the right combinatino is not available.

Haugen uses close to 70 parameters , Greenblatt only two ones . Both of them , like others claim to have achieved overperformances vs. the normal stock indices. And no one gives away the full detail of the formula . Even in that case , there would be some concerns about the results and the cost of trying the copy them : the databases you utililize can change the results and the costs of the databee , they way they treat the exceptions . At the end the same Greenblatt warns that you cannot be sure that the results achieved in the past can be replicated in the future . 

In his book , Greenblatt suggests , if the readers wants to "do it himself" , to use 2 indicators ("P/E" and "ROA") and how to invest . Some readers are trying to simulate the results with his methods : the outcomes I've seen are not so exciting .

I guess you should use the method , mixing it with a look at the graph of each stock you are going to choose .

 

investment strategies (2)

If we want to use a portfolio strategy we have   many alternatives , of which:

a)Dogs of the Dow ( the master) and its clones ( Dogs of Euronext , of DAX , of S&PMIB , ...) : you buy at the beginning of the year , the first (say) 10 stocks components of the list in (decreasing) order of dividend yield . You can also make a second step : put those 10 stocks in  price order and buy the cheapest 5 . 

b) You can use the Select Dividend Indices of STOXX . They are made of stocks that in past years have always given high and regular dividends . And are divided by zones : Euro , Europe non Euro , European Nordic Countries , USA , Asia , etc . Then you should choose which of the listed company you want to buy.

Stoxx provide also indices oriented to different strategies , i.e. Growth , that we mentioned in the first post .

It's interesting to look at the results of a couple these indices . Let's take the Euro area :

a) 1 year . All below zero with "growth index" = - 18% and "value index" =-21%

b) 3 years . "Value" above zero around 40%  while "Growth" 20 %

c) 5 years . + 110 % vs +75 %

"Value" better than "Growth" ? Look at the components : "Value" have a lot of financial institutions . If we make a comparison between the performance of Eurostoxx50 and DJ Euro Select Dividend in the last year we can notice that the first one lost 14% vs 21% of the second one ....

In any cas  we got at the point . We can choose "Value" stocks  , but their price can fluctuate during the year : we'd need to be able to buy them when they are cheap . But we have to find the way.

Investment strategies (1)

Every day the newspapers explains the basic strategies to invest in stocks : Growth or Value , even if sometimes they are not named in this way. 

Very shortly.

Growth : buy stocks with high growth expectations , they are not cheap but have a great potential.

Value : buy stocks undervalued and with high dividend yield .

In theory the second class should be less risky . But let's look at few cases .

Let's take Fabege , a real estate company based in Stockholm . If examined around 1 year ago it had P/E close to 10 , a yield of say 6 % and a P/BV near 1 : you'd buy it and now have a loss around 30 %! . 

Otherwise DSG , listed in London : more or less the same indicators and an actual loss (if bought 1 yr ago ) of 2/3!

Of course , if you trust the company , you keep the stocks and wait . 

Let's see another example : Outokumpu , based in Finland , same fundamentals as the two stocks abovementioned  , in one year has started from 30 landed to 18 and then arrived to 32 €.

So , how to choose what and when buy and how to decide what and when sell ?

You should have a method.