Over the last few months, I have wondered whether investing in the stock market has become more of a hobby and less about money management. Even though I do not trade frequently – I average 3-4 trades a month – I am unable to compute and compare my total returns against any index or mutual fund, for that matter. Over the holidays I decided to figure out if it is worth trying to find individual stocks or better to stick with an ETF. Note that this comparison may be instructive/suggestive to others because each investor picks stock differently, which is what gives rise to a dynamic stock market.
I decided to pick 25 of my favorite stocks and created a virtual portfolio with $4000 invested in each company. I intend to track this portfolio over the next several years and compare the total returns (dividends + capital appreciation) against three ETFs that I particularly like. I will not reinvest the dividends but collect them in cash and invest in one or more stocks at the end of each quarter. This exercise is aimed at helping me answer the question – am I picking half-way decent stocks? Metrics I plan to use:
- Volatility – would the wife be able to sleep at night?
- Net monthly dividend amount received (annual dividends divided by 12) – would I have reasonable income if I were to desire it?
- Capital appreciation – would we feel rich (multi-millionaires) in a couple of decades?
- Winners/Losers – Do I have a winner / loser over the long term or mostly mundane picks?
- Diversification – Am I suitably invested in different sectors, geographies and currencies? Sort of correlated to the volatility aspect.
- I feel that I cannot answer some of these questions based on my current portfolio that has built over 4+ years and includes various crazy picks at weird prices mostly based on tips and random suggestions by others. I want to figure out if I am a better investor than I was 5 years ago when I first opened a brokerage account.
| Company | Ticker | Price | Num Stocks | Holding Value | EPS | Div/Sh | Div Yield | Net Div Amt |
| AstraZeneca | AZN | 46.29 | 86 | 3980.94 | 7.26 | 2.7 | 5.83% | 232.2 |
| Banco Santander | STD | 7.52 | 531 | 3993.12 | 1.23 | 0.552 | 7.34% | 293.112 |
| Bank of Montreal | BMO | 54.81 | 73 | 4001.13 | 5.26 | 2.8 | 5.11% | 204.4 |
| BASF SE | BASFY.PK | 69.73 | 57 | 3974.61 | 6.7 | 2.2925 | 3.29% | 130.6725 |
| BHP Billiton | BBL | 58.39 | 68 | 3970.52 | 8.54 | 2.02 | 3.46% | 137.36 |
| Canon | CAJ | 44.04 | 91 | 4007.64 | 2.56 | 1.4364 | 3.26% | 130.7124 |
| CPFL | CPL | 28.21 | 142 | 4005.82 | 3.06 | 1.4585 | 5.17% | 207.107 |
| Dover | DOV | 58.05 | 69 | 4005.45 | 4.3 | 1.18 | 2.03% | 81.42 |
| E.On AG | EONGY.PK | 21.39 | 188 | 4021.32 | 1.38 | 1.5883 | 7.43% | 298.6004 |
| Emerson Electric | EMR | 46.59 | 86 | 4006.74 | 3.27 | 1.435 | 3.08% | 123.41 |
| Flower Foods | FLO | 18.98 | 211 | 4004.78 | 0.96 | 0.6 | 3.16% | 126.6 |
| France Telecom | FTE | 15.66 | 255 | 3993.3 | 1.13 | 1.6411 | 10.48% | 418.4805 |
| Intel | INTC | 24.25 | 165 | 4001.25 | 2.31 | 0.84 | 3.46% | 138.6 |
| J&J | JNJ | 65.58 | 61 | 4000.38 | 4.1 | 2.28 | 3.48% | 139.08 |
| Lincoln Electric | LECO | 39.12 | 102 | 3990.24 | 2.37 | 0.68 | 1.74% | 69.36 |
| Lockheed Martin | LMT | 80.9 | 49 | 3964.1 | 8.56 | 4 | 4.94% | 196 |
| Novartis | NVS | 57.17 | 70 | 4001.9 | 4.27 | 2.353 | 4.12% | 164.71 |
| Pepsico | PEP | 66.35 | 60 | 3981 | 3.99 | 2.06 | 3.10% | 123.6 |
| Qualcomm | QCOM | 54.7 | 73 | 3993.1 | 2.52 | 0.86 | 1.57% | 62.78 |
| Reality Income | O | 34.96 | 114 | 3985.44 | 1.07 | 1.752 | 5.01% | 199.728 |
| SeaDrill Ltd. | SDRL | 33.18 | 121 | 4014.78 | 3.51 | 3.135 | 9.45% | 379.335 |
| Siemens | SI | 95.61 | 42 | 4015.62 | 6.96 | 2.9541 | 3.09% | 124.0722 |
| Telefonica SA | TEF | 17.19 | 234 | 4022.46 | 4.08 | 1.72 | 10.01% | 402.48 |
| Timken Co. | TKR | 38.71 | 104 | 4025.84 | 4.46 | 0.8 | 2.07% | 83.2 |
| Total SA | TOT | 51.11 | 79 | 4037.69 | 5.33 | 2.6948 | 5.27% | 212.8892 |
| Total | $99,999 | 4.68% | 4679.9 | |||||
| SPDR S&P 500 | SPY | 125.5 | 796 | $99,898 | 2.576 | 2.05% | 2050.496 | |
| Dow Jones Select Dividend | DVY | 53.77 | 1859 | $99,958 | 1.8483 | 3.44% | 3435.99 | |
| Vanguard Div Appreciation | VIG | 54.65 | 1829 | $99,954 | 1.172 | 2.14% | 2143.588 |
Other financial information that I often track or use while making decisions:
| Company | Ticker | Debt/Eq | Div Gr - 1yr | Div Gr - 3yr | Div Gr - 5yr | Div Yield | Payout Ratio |
| AstraZeneca | AZN | 0.31 | 15.31 | 11.26 | 18.65 | 5.83% | 37.19% |
| Banco Santander | STD | 0.36 | -25.08 | -4.71 | 6.9 | 7.34% | 44.88% |
| Bank of Montreal | BMO | 0.24 | 0 | -0.07 | 4.4 | 5.11% | 53.23% |
| BASF SE | BASFY.PK | 0.51 | -14.78 | -6.63 | 6.69 | 3.29% | 34.22% |
| BHP Billiton | BBL | 0.25 | 9.64 | 17.57 | 23.25 | 3.46% | 23.65% |
| Canon | CAJ | 0.01 | -0.68 | 10.58 | 3.26% | 56.11% | |
| CPFL | CPL | 0.98 | 15.3 | -3.69 | 16.07 | 5.17% | 47.66% |
| Dover | DOV | 0.45 | 4.9 | 11.59 | 10.15 | 2.03% | 27.44% |
| E.On AG | EONGY.PK | 0.8 | -5.76 | -1.79 | 6.04 | 7.43% | 115.09% |
| Emerson Electric | EMR | 0.4 | 2.99 | 4.77 | 9.17 | 3.08% | 43.88% |
| Flower Foods | FLO | 0.38 | 14.81 | 19.14 | 24.84 | 3.16% | 62.50% |
| France Telecom | FTE | 1.12 | 32.16 | -0.06 | 15.68 | 10.48% | 145.23% |
| Intel | INTC | 0.15 | 12.5 | 11.87 | 14.51 | 3.46% | 36.36% |
| J&J | JNJ | 0.21 | 9.33 | 9.21 | 10.6 | 3.48% | 55.61% |
| Lincoln Electric | LECO | 0.08 | 5.5 | 8.11 | 9.52 | 1.74% | 28.69% |
| Lockheed Martin | LMT | 2.22 | 12.82 | 21.55 | 20.25 | 4.94% | 46.73% |
| Novartis | NVS | 0.21 | -3.6 | 14.65 | 13.86 | 4.12% | 55.11% |
| Pepsico | PEP | 0.93 | 6.48 | 9.87 | 13.35 | 3.10% | 51.63% |
| Qualcomm | QCOM | 0.04 | 12.5 | 10.52 | 14.04 | 1.57% | 34.13% |
| Reality Income | O | 0.99 | 0.88 | 3.13 | 4.96 | 5.01% | 163.74% |
| SeaDrill Ltd. | SDRL | 1.37 | 382 | 9.45% | 89.32% | ||
| Siemens | SI | 0.46 | 67.48 | 7.44 | 8.8 | 3.09% | 42.44% |
| Telefonica SA | TEF | 3 | 6.11 | 16.24 | 14.85 | 10.01% | 42.16% |
| Timken Co. | TKR | 0.22 | 17.78 | -7.05 | -2.45 | 2.07% | 17.94% |
| Total SA | TOT | 0.34 | -11.2 | -0.03 | 5.14 | 5.27% | 50.56% |
The prices are closing prices as of December 30, 2011. The virtual portfolio would pay approximately $4500 per year, which gives a yield of 4.5%. I intend to compare it against S&P 500 via the SPDR ETF (SPY) and two dividend focused ETFs – Dow Jones Select Dividend Index (DVY) and Vanguard Dividend Appreciation ETF (VIG). Obviously, there are many approaches and this is just one . There are perhaps far better stock picks, especially those intended for capital appreciation, e.g., Apple (AAPL), Amazon.com (AMZN) etc. But Alas! They do not pay dividends and I absolutely require a 2% dividend yield.
I will be back every quarter with updates and thoughts on where I did well and where I did not and if any mid-year corrective actions are required.
