YCharts posted an article on Forbes outlining 22 stocks that would be selected by a hybrid of the Buffett and Lynch approaches. They posed the question "Who has the best strategy for picking winning stocks, Warren Buffett or Peter Lynch?"
They created this Buffett and Lynch hybrid list by taking a key fundamental in each investor’s strategy and merging them into one stock-picking model.
Rather than quibble over which billionaire is more worthy of following, they looked for stocks both Buffett and Lynch can appreciate. The result: a list of 22 solid companies worthy of any value investors’ attention. The resulting 22 stocks are not, of course, the only shares a Buffett or Lynch investor might consider. But for fans of these strategies, it narrows the possibilities to companies with respectable earnings growth and yields, decent share prices and strong balance sheets. It’s a safer place to start.
Funds in this portfolio:
(NASDAQ:AMGN) (Amgen Inc)
(NASDAQ:ADI) (Analog Devices)
(NYSE:BMY) (Bristol Myers Squibb)
(NYSE:BAM) (Brookfield Asset Management Inc)
(NYSE:BG) (Bunge Ltd)
(NYSE:CLF) (Cleveland Cliffs)
(NYSE:KO) (Coca Cola)
(NYSE:LLY) (Eli Lilly)
(NYSE:FTI) (FMC Technologies, Inc.)
(NYSE:GPS) (Gap The Inc)
(NASDAQ:GILD) (Gilead Sciences Inc)
(NYSE:HPQ) (Hewlett Packard)
(NYSE:IBM) (Int'l Business Machines)
(NASDAQ:INTC) (Intel Corporation)
(NYSE:MCD) (McDonald's Corp.)
(NASDAQ:MSFT) (Microsoft Corporation)
(NYSE:MOS) (Mosaic Company)
(NYSE:NOC) (Northrop Grumman)
(RIMM) (Research in Motion Limited)
(NYSE:TJX) (The TJX Companies, Inc.)
(NYSE:BDX) (Becton Dickinson)
(NYSE:GLW) (Corning Inc.)
We entered these funds into our system and then compared it with a balanced portfolio of dividend producing ETFs.
|Asset||Funds in this portfolio|
|REAL ESTATE||(NYSEARCA:ICF) (iShares Cohen & Steers Realty Majors)|
|FIXED INCOME||(NYSEARCA:TIP) (iShares Barclays TIPS Bond)|
|Emerging Market||(NYSEARCA:VWO) (Vanguard Emerging Markets Stock ETF)|
|US EQUITY||(NYSEARCA:DVY) (iShares Dow Jones Select Dividend Index)|
|US EQUITY||(NYSEARCA:VIG) (Vanguard Dividend Appreciation ETF)|
|INTERNATIONAL EQUITY||(NYSEARCA:IDV) (iShares Dow Jones Intl Select Div Idx)|
|High Yield Bond||(NYSEARCA:HYG) (iShares iBoxx $ High Yield Corporate Bd)|
|INTERNATIONAL BONDS||(NYSEARCA:EMB) (iShares JPMorgan USD Emerg Markets Bond)|
22 Stocks Good Enough For Buffett And Lynch -- Total of $10K invested equally in each stock
Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA 40% fixed income, 30% for each of the top two asset classes)
Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA 40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio Performance Comparison
|Portfolio/Fund Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|22 Stocks Good Enough For Buffett And Lynch||22%||125%||-5%||-15%||12%||37%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||18%||179%||4%||17%||5%||24%|
|Retirement Income ETFs Tactical Asset Allocation Moderate||14%||146%||10%||78%||11%||75%|
More detailed analysis and graphs show the volatility of the stock portfolio. We can see how well it did in the run up to the great recession and then how precipitously it dropped, followed by a good recovery. This is going to be a fairly hard portfolio to live with unless you have a very long investment horizon.
Five Year Chart
click to enlarge
This is an interesting portfolio to track to see how it does. Certainly, it would be prudent to allow more time to demonstrate longer term performance. It's important to be aware of the volatility of the portfolio and be certain you can live with it. For those with a long time horizon, you can see that the long term performance is reasonable but it's going to be a bumpy ride.
In the next article, we will drill down further. From the list of 22 stocks, we will examine five good prospects from the list of 22.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.