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I am a young investor, aiming to maximize my long term returns by constantly researching and purchasing stocks and ETFs. I focus my efforts on long term dividend paying stocks, unique stocks with long term drivers, and Canadian income stocks. As a young investor I focus solely on equity, but I... More
  • Tired Of Analysis? A DIY Anti-Analysis Portfolio 0 comments
    Apr 17, 2013 12:01 AM | about stocks: WJAFF, WMT, EBAY, EXPE, FB, RY, DIS, TU, LEFUF, YHOO, DAL, GOOG, AIDIF, AMZN, CDNAF, COST, MSFT

    Are you tired of analysis the stock market? There are other ways to build a portfolio believe it or not! As part of my contribution to Seeking Alpha, I'm going to explore the other side of investing: The oddly specific, yet heart-warmingly unnecessary portfolio for those of you who like to do research, but not the stock analysis kind.

    My first DIY anti-analysis is called the "Search" portfolio. This name may in some small way be influenced by the fact my previous name, "The Google Portfolio", may accidentally offend some powerful lawyers.

    The concept behind the Search portfolio is to search letters (or combinations of letters) to determine some of the search engines most popular companies, and invest in them. The added bonus is that some of these searches may be tailor made for you on a personal level, depending on the search engine used and the complexity of said search engine.

    With all of this in mind, I've developed the proceeding portfolio. The first (and simplest) is to choose the companies that come up while entering the 26 alphabet letters. In my case a portfolio of 17 companies was produced. For curiosity sake, if you try the first two letters you get a portfolio with around 40 names. Again, these results will likely differ somewhat between persons. I had many I had to rule out as they were already searches I had done which limited search results for certain letters. There may also be some affiliation between stocks I didn't recognize (such as Microsoft and Xbox, had that been unknown to me).

    In my particular search engines results are as follows, in QWERTY order:

    Westjet (OTC:WJAFF) - Transportation

    Walmart (WMT) - Retail

    Ebay (EBAY) - Retail

    Expedia (EXPE) - Services

    Facebook (FB) - Technology

    Royal Bank of Canada (RY) - Financial

    Disney (via TSN) (DIS) - Services

    Telus (TU) - Services

    Leon's (via The Brick) (OTCPK:LEFUF) - Retail

    Yahoo (YHOO) - Technology

    Delta (DAL) - Transportation

    Google (GOOG) - Technology

    Air Canada (OTCPK:AIDIF) - Transportation

    Amazon (AMZN) - Technology

    Canadian Tire (OTCPK:CDNAF) - Retail

    Costco (COST) - Retail

    Microsoft (via Xbox) (MSFT) - Technology

    As we can see, a great number of the companies sell directly to consumers. This makes a great deal of sense, consider that's what people want. They are also all market leaders in their respective industries. There is also a disproportionate amount of Canadian companies for some reason...

    We have 5 technology, 5 retail, 3 transportation, 3 service, and 1 financial company. As always, what would an SA Instablog be without some portfolio analysis:

    Fun Fact, this portfolio returned nearly 106.8% since April 18th of last year. Also interesting, as of the 16th of April the return 55.1%... Why the discrepancy? I have literally no idea... Just kidding, it's totally Expedia and Air Canada. Turns out about a year ago these two were having a rough time. Notable as well, the portfolio I created a year ago by doing this experiment did not include Expedia, but Air Canada did make the cut even during that turbulent time. Year to date it's sitting at about 17.31% increase. It compares to SPY at 14% for the year and 10.53% year to date. It also compares to a hastily crafted weighted American-only industry weighted portfolio of 12.63% for the year and 10.46% year to date. So it definitely compares pretty favorably.

    The dividend rate on the portfolio would be much below industry average; only 5 of the companies have a dividend rate larger than the 2% S&P500 rate (SPY) and six with no dividend yields at all. Bear in mind all of these companies are considered growth stocks, so they usually have small yields as they use their cash to growth their business.

    One of my favorite things to do when analyzing a stock portfolio I created is to eliminate outliers. In this case we would eliminate the two top performers and two bottom performers. In this case we would eliminate Facebook (-29%) and Microsoft (-6%) as well as Air Canada (+270%) and Expedia (+98%).

    With the outliers eliminated, it still represents a solid portfolio returning 33.65% over the one year mark and 11.59% year to date.

    The beta of the portfolio is approximately 0.99454, which I found interesting. It's about as volatile as the market, but this is mainly due to some being much higher than the market (highest is Expedia at 1.66) and some being much lower (Walmart at 0.36). Quite a few were close to 1, and a few did not have a calculated beat yet, like Facebook. The Price to Earnings (P/E) sits at an embarrassingly high 137.842. This calculation is best when outliers are eliminated, much like our previous example. In this case FB and EXPE on the high end and AIDIF and YHOO on the low end. With them eliminated it sits at 13.9167, though 2 stocks did not have a calculable P/E ratio to use (Amazon and Canadian Tire, but on the high end when profitable). Also note just eliminating Facebook gives a P/E of 17.5.

    Expedia, Facebook, and Costco would not have been part of this portfolio had I created it a year ago (again, my data points from last year exclude these three), but the companies that may have replaced them have performed quite well (though none as good as Expedia, and none as bad as Facebook).

    So what can we take from all this? You can decide that for yourself, if you've read this and have some input, feel free to comment on it. Otherwise, have good one, and I hope you enjoyed this unnecessary article as much as I enjoyed writing it.

    All data points and calculations of return were based on Google Finance information. I am long many of these stocks indirectly through ETF's. I do not hold any of these securities individually.

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

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