Best 5 Stocks From the 'Buffett and Lynch 22'

Includes: BDX, BMY, KO, MSFT, NOC
by: MyPlanIQ
YCharts posted an article at Forbes outlining 22 stocks that would be selected by a hybrid of the Buffett and Lynch approaches to stock-picking.
In a previous article, we reported on the historical returns from these 22 stocks and noted that that returns and volatility were high.

The authors go on further to drill down the best five stocks among this group of 22, along with explanations as to why.

Top 5

Bristol Myers Squibb (NYSE:BMY)
Coca Cola (NYSE:KO)
Microsoft Corporation (NASDAQ:MSFT)
Northrop Grumman (NYSE:NOC)
Becton Dickinson (NYSE:BDX))

We entered these funds into our system and then compared them with a balanced portfolio of dividend producing ETFs as well as the original 22 stock portfolio..


Fund in the portfolio

REAL ESTATE ICF (iShares Cohen & Steers Realty Majors)
FIXED INCOME TIP (iShares Barclays TIPS Bond)
Emerging Market VWO (Vanguard Emerging Markets Stock ETF)
US EQUITY DVY (iShares Dow Jones Select Dividend Index)
US EQUITY VIG (Vanguard Dividend Appreciation ETF)
INTERNATIONAL EQUITY IDV (iShares Dow Jones Intl Select Div Idx)
High Yield Bond HYG (iShares iBoxx $ High Yield Corporate Bd)
INTERNATIONAL BONDS EMB (iShares JPMorgan USD Emerg Markets Bond)

We would hope to retain most of the returns while losing some of the heart stopping volatility.

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%
Top 5 Stocks Good Enough For Buffett And Lynch 18% 140% 5% 22% 7% 31%
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%

Three Month Chart

Five Year Chart,22065,22062,33618&securityID=&yearNum=5

The more detailed analysis and graphs show the volatility of the stock portfolios.

This is an interesting outcome. We see the volatility drop nicely even though we lose returns. We can see that these stocks perform better than the buy and hold ETF portfolio being compared. This has the benefit of being lazier -- no change was made to the portfolio compared to monthly rebalancing of the ETF portfolio and the results are slightly higher.

We will track both of these portfolios and report on how they navigate the current set of choppy conditions.

Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Disclosure: Author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.