Since I wrote "The Method To My Stock-Picking Madness, Part 1", the original My Mad Method (or "MyMM") article back in April, I've received a lot of positive feedback and suggestions about what to do to improve the structure and metrics contained within the spreadsheet that I use to evaluate stocks on my watchlist and in my portfolio. I've always intended for MyMM to evolve organically, and so it has over the last three months.
The purpose of this article is to let anyone who is interested know of the changes that I've made to the MyMM spreadsheet, and to formally extend the offer to send a "blank" copy of it to you, should you so desire (free of charge, and I promise I won't sell your email address to a spam site!).
First of all, the original MyMM spreadsheet had different metrics that related to the same investing topics scattered around in a somewhat haphazard manner. This was the result of me adding new metrics over time, appending each new metric in the next available column in the spreadsheet, until I ended up with the original 15 metrics. So, one of the things I have done in the revised version of the spreadsheet is reorganized the metrics and grouped them together by topic. I will list the metrics and the groups they belong to in a bit. But first, I'd like to tell you about some other changes that I've made.
One of the suggestions I received was not to have too many (or redundant) metrics related to the same type of investing fundamental. Along those lines, and because I've become more interested in Dividend Growth Investing (or "DGI") than I have about whether a company is a "growth" oriented company, I've dropped the PEG Ratio metric and its ranking from the MyMM spreadsheet. This seemed redundant to the other Valuation metrics, and, as I mentioned, not in keeping with my evolved emphasis on DGI.
Also along those lines, I've added a new metric, which isn't really a metric at all, but its own single-column ranking: Dividend CCC Rank. In this column I plug a number that corresponds to whether the company in question is a Dividend Champion, Contender, Challenger, Near-Challenger, "Fallen Angel", or None of the Above, based on the data available from David Fish's U.S.DividendChampions.xlsx spreadsheet, which can be found here. This is because, as I mentioned, I've become much more interested in stocking my portfolio with companies that consistently grow their dividends over time, so that I can build enough of an income stream to support my needs in retirement. The result is that now the "Dividend Metrics" section of the MyMM spreadsheet is a little crowded compared to the other groupings of metrics, and while this is contradictory to the advice I was given about not having too many metrics related to one topic, I feel that this is in keeping with my personal emphasis on DGI. The scale I use is intentionally heavily weighted in favor of the CCC companies. Keeping in mind that, like all of my rankings in MyMM, lower is better, here is the scale that I have devised to represent whether a company is a CCC company or not, and which "C" it is:
25+ Straight Years of Dividend Increases
10-24 Straight Years of Dividend Increases
5-9 Straight Years of Dividend Increases
Companies that have increased their dividends for four years and may join the Challengers listing in the next 12 months.
Companies that had increased their dividends for a number of years before paying the same amount in back-to-back years (a dividend "freeze"), but have since resumed increases.
None of the Above
Companies that don't fit any of the above categories.
Categories and Metrics
Here now is the revised list of 17 metrics, grouped into the appropriate categories and in the order in which they occur across the MyMM spreadsheet from left to right:
- Recent Yield
- Payout Ratio
- 5 Year Dividend Growth
- TTM Cash Margin
- Dividend CCC Rank
- Recent P/E
- Price to Book Ratio
- Graham Number Ratio (the ratio of the Recent Price divided by the Graham Number for the company)
- Return on Equity (ROE)
- Gross Margin
- Net Profit Margin
- 5 Year Revenue (Sales) Growth
Financial Strength Metrics
- Current Ratio
- Total Debt to Equity Ratio
The BMW Method Metrics
- BMW Root Mean Square (RMS)
- BMW Return Factor
- % Allocation in Portfolio
The last "metric", "% Allocation", is provided so that you can include stocks that are in your portfolio in the same list as stocks on your watchlist, and put in this column the percentage of your portfolio's total current value that company's current value represents. You can then set the allocation of your watchlist stocks to 0%, in which case they will receive the best ranking and your overall rankings will "favor" them, or you can set the allocation of your watchlist stocks to 100% to "favor" the stocks in your portfolio.
With regard to The BMW Method metrics, these are in the MyMM spreadsheet to allow me to influence the overall ranking of the stocks on my watchlist (or combination portfolio and watchlist) based on how far their current prices are below or above the average CAGR of their prices, and what kind of return on investment one might realize should a company's current price revert to its average CAGR. For more information about these metrics, please see the article "The Method To My Stock Picking Madness, Part 2" for the detailed description of what these numbers represent, and why I've included them in the MyMM spreadsheet.
As I described in detail in the article, "My Mad Method: Weighting Metrics", each of the rankings of the above metrics can be given a percentage weight above or below the nominal weight of 1 that each metric starts out with. This allows the user to give a greater emphasis to one or more metrics' ranking, or, by setting the weight to zero, temporarily remove that metric from the calculation of the overall ranking of the companies on the list altogether.
I've also included some data in the MyMM spreadsheet that aren't included in calculating the overall rankings of each of the companies on one's list, but which can be useful in indicating how far or close each company's recent price is to its 52 week high and low. I first introduced these indicators in the article "My Mad Method: Breaking Ties, What Next To Buy, And Why, Part 1", and "Part 2". These additional indicators are the "52 Week Delta Ratio" (where "delta" refers to "difference between High and Low"); the "Delta Ratio Reading" (which ranges from "Screaming!" to "Too High", "Stable", "Falling", "Buy!" and finally "Holy Cow!"); and the "52 Week Hi-Lo Average", which by using Microsoft (MSFT) Excel Conditional Formatting will turn green should this number be greater than or equal to the given stock's recent price. These indicators can be helpful in "breaking ties" between stocks that end up with the same rank or are otherwise closely ranked near the top of one's list. (These are not set up to be weighted, but you could do that yourself by duplicating the "Delta Ratio Reading' column and replacing the "Reading" values with a numeric value, and then including the result and its weight in the overall average calculation.)
Now for the free offer: I have prepared a "blank" copy of the My Mad Method spreadsheet, complete with instructions on how to populate and/or modify it, which I will gladly email to you. I say "blank" in quotation marks because it's really not "empty", but has been pre-filled with 35 companies that I've taken from my watchlist and portfolio, with their appropriate metrics as of July 20th, 2012. These are present to give you an idea of how the spreadsheet works, including the calculations in each of the appropriate columns (cells) so that the spreadsheet will function properly for you. All you need to do is replace the existing data with the data for the companies that you would like to evaluate. (Of course, if you're interested in one of the 35 companies I've pre-loaded, you can just leave it as is!) Here are the 35 companies, and their current ranks relative to each other, sorted by their ticker symbols:
American Capital Agency
Alliance Resource Partners, L.P.
BHP Biliton plc
NTT DoCoMo Inc.
Ford Motor Company
General Dynamics Corp
General Electric Company
Johnson & Johnson
Kimberly Clark Corp
Kinder Morgan Energy Partners, L.P.
The Coca-Cola Company
Lockheed Martin Corp
Main Street Capital Corp
MV Oil Trust
Annaly Capital Mgmt
Republic Bancorp Inc - Class A
Vodafone Group plc
Wells Fargo & Co
If you would like a copy of this spreadsheet, simply send me a Message here on Seeking Alpha, and be sure to include your email address, and I will email it out to you as quickly as my day job permits (usually by the next day, except on weekends).
If you are one of the dozens of folks who has already requested and received an earlier copy of the My Mad Method spreadsheet, I have already emailed this latest, revised version to you at the email address you had previously provided me.
Thank you for taking the time to read this, and I hope you find this tool useful and helpful in your efforts to get the most out of your investments. If you have any questions, please don't hesitate to ask!
Additional disclosure: I am not a professional investment advisor or financial analyst; I’m just a guy who likes to crunch numbers and can make an Excel spreadsheet do pretty much whatever I want it to do, and I’m doing my best to manage my own portfolio. This article is in no way an endorsement of any of the stocks discussed in it, and as always, you need to do your own research and due diligence before you decide to trade any securities or other products.