Investing Like A Tortoise For Growth And Income
Seeking Alpha Analyst Since 2012
The chief Viking deity, was Odin. Odin had two ravens on his shoulders, one for memory and the other for thought.
Investments require both memory of past results and thought of future returns.
Summary
- My style of investing is to meet the objective- growth and income.
- Familiarity of a company, is key to finding good investment ideas for growth and income.
- Familiarity of a companies balance sheet helps me to not panic in major market downturns.
- Diversification key to survival.
My investing style
Tortoise, what an amazing reptile! They live for about 150 years, survived the dinosaur age and are a good model for survival. My investment style has been changing over the years from someone impatient and wanting to make the portfolio grow quickly like the fast paced extinct terrible T-Rex to the slow moving Tortoise. I have found making quick and sudden moves like the serious T-Rex has been lethal to my portfolio and not what I had wanted.
Finding good stocks for investment selection
I think all investors need a basic approach, so that when the market collapses due to either a major financial panic (1987), terrorist attack (2001) a fat finger trade (2010), a financial institution collapse (2008) or to a virus from a far away land (2020) I won’t panic sell and instead put cash to work.
To reach my income goals from stocks, I have a mix of dividend payers, growth stocks, and preferred equities.
Actionable analysis
Growth and income ideas
First rule is familiarity.
Familiarity of a stock is have to have some touch point either from my own living and moving about the world buying things or services or from my work experience. Familiarity as a rule is the most important for three reasons. Familiarity gives the investor ideas for potential investments (strong business model, good balance sheet, sustainable dividend), the confidence to hold on to the investment in a market-down turn, and the conviction to purchase more shares in a sell off.
The process to find potential investments starts by the rule of familiarity. One area of familiarity for me is goods or services I buy or use. I go to Home Depot for bird seed, plants, and light bulbs, tools, gardening supplies. I have an iPhone, Mac book pro, and iPad. I go to Starbucks about once a week. I wear Nike shoes, I see the ladies at the gym, wearing Lululemon pants. I like to watch Disney movies, the whole Marvel franchise though predictable is fun to watch, and of course don’t forget StarWars. During the pandemic I opened an Amazon account. To Google we all know is a verb. The ability to do my own channel checks on each potential company, gives me confidence that the investment may be a winner. I know if my Apple store is humming along with lots of customers, or my local Starbucks has a long line of folks and my coffee is exactly like I wanted, I know things at the street level are doing well. Another area of getting ideas for investments that have familiarity are companies at the top of the most well known or highest brand value list from Forbes. Of course it is no coincidence that most familiar companies are on the list. Businesses that tend to be on the most valuable brand list tend to have fantastic business models. Below from Forbes the top thirty one most valuable brands in the world, another good starting place for investment ideas.
Rank |
Brand |
Brand Value |
1-Yr Value Change |
Brand Revenue |
Industry |
1 |
$241.2 B |
17% |
$260.2 B |
Technology |
|
2 |
$207.5 B |
24% |
$145.6 B |
Technology |
|
3 |
$162.9 B |
30% |
$125.8 B |
Technology |
|
4 |
$135.4 B |
40% |
$260.5 B |
Technology |
|
5 |
$70.3 B |
-21% |
$49.7 B |
Technology |
|
6 |
$64.4 B |
9% |
$25.2 B |
Beverages |
|
7 |
$61.3 B |
18% |
$38.7 B |
Leisure |
|
8 |
$50.4 B |
-5% |
$209.5 B |
Technology |
|
9 |
$47.2 B |
20% |
$15 B |
Luxury |
|
10 |
$46.1 B |
5% |
$100.2 B |
Restaurants |
|
11 |
$41.5 B |
-7% |
$187 B |
Automotive |
|
12 |
$39.5 B |
2% |
$72 B |
Technology |
|
13 |
$39.1 B |
6% |
$39.3 B |
Apparel |
|
14 |
$37.3 B |
-10% |
$151.2 B |
Telecom |
|
15 |
$36 B |
4% |
$50.6 B |
Technology |
|
16 |
$35.7 B |
11% |
$39.1 B |
Technology |
|
17 |
$32.3 B |
2% |
$131.9 B |
Telecom |
|
18 |
$31.8 B |
18% |
$23 B |
Financial Services |
|
19 |
$29.5 B |
12% |
$341 B |
Retail |
|
20 |
$29.5 B |
-14% |
$76.6 B |
Diversified |
|
21 |
$28.9 B |
6% |
$11.2 B |
Alcohol |
|
22 |
$28.6 B |
0% |
$30.9 B |
Technology |
|
23 |
$28.5 B |
-14% |
$121.7 B |
Automotive |
|
24 |
$28.2 B |
-10% |
$77.1 B |
Technology |
|
25 |
$26.8 B |
-6% |
$25.1 B |
Tobacco |
|
26 |
$26.7 B |
72% |
$20.2 B |
Technology |
|
27 |
$25.9 B |
-13% |
$93.4 B |
Automotive |
|
28 |
$25.1 B |
-3% |
$43.6 B |
Financial Services |
|
29 |
$24.5 B |
-5% |
$126.2 B |
Automotive |
|
30 |
$22.8 B |
23% |
$11.7 B |
Consumer Packaged Goods |
|
31 |
$22.6 B |
22% |
$10.8 B |
||
Second rule- Stock paying dividend
Second familiarity rule, become familiar of the stocks dividend history. Stocks that have a history of paying a dividend consistently over time, meaning not missing a payment, are stocks of companies that are usually healthy from a financial perspective. Here I think that a company that has a history of raising its dividend for at least ten years is an indicator of being well run and not likely to face any major financial trouble.
If one is buying a stock for a dividend the company should be committed to paying that dividend. A company that is paying at least 10 years of dividend growth, is one that is committed to continuing a payment.
Always the balance sheet review should help determine if the company can continue with the payout of whatever dividend is being produced, no more than 25%Debt/equity is desirable. A good review of credit worthiness is either ValueLine rating or SimplySafe dividend rating service.
Do not use a dividend yield as your guide to buying in the first place. It really is about the business first. Example if you had bought Google at its IPO price and was now worth 400K today, would you lament that it has no dividend? Of course not.
Third rule of Familiarity in the company helps to give you confidence to retain ownership of your stocks in a market downturn.
The market itself has in the past as illustrated by the recent events in March has had horrific sell offs that can shake the very foundation of many amateur investors. As illustrated in the chart below an investor can see some of the scars of past sell offs. Having a familiarity of a company and hence its stock gives me the confidence that the company will survive, which allows me to move like a Tortoise and make slow moves, if any. Slow moves mean not selling in a market down turn. The whole ability to hold through thick and thin is having personal knowledge of the company invested in and the comfort knowing it will survive some of the disastrous market down turns as shown in the Morning Star graph below. The true ability to not panic sell is one of the hardest lessons to master. In a market panic sell-off review the graph below to remind yourself, that eventually markets rebound, and to encourage the investor to act like a Tortoise, when threatened pulling into your shell and laying on the forest floor should be your first and quite possible only move.
Part of the familiarity process is to review the companies balance sheet, see if its debt to equity is less than 25% or that it is actively reducing its debt. If this too much research at least use ValueLine service and or Moody’s ranking to see that it is at least investment grade or better. Armed with the fact that markets do eventually rebound and that companies with good (not bank loans) and low debt don’t typically go bankrupt and your familiarity of the business model should give you confidence to move slow.
Forth rule- diversification.
Part of the process is diversification.
I think a good rule of thumb is to have no more than three stocks in the same sector. Meaning three stocks in financials or three in software, or three in heavy industry, three in pharmaceutical etc.
To build up a position to about 3.5% of your portfolio and have 25-80 stocks seems reasonable to manage and allows diversification. Three percent is based out of 3.5% x 30, which is about 100 %. This gives protection in a situation where one stock gets crushed to zero, you still have 97 % remaining. The rationale is to keep your losses to a minimum.
Part of that diversification is having enough cash on hand for one of those moments when the markets crash and to have the option to jump on your favorite well known stock at very cheap levels or start a new position of stock you have been eyeing from your watch list. I like to keep at least 3% or about one position in cash.
Once I am living on my dividends for my retirement income my cash position of about 3% will be held for those events where the cash will be used to level out problems such when a stock stops paying a dividend or where the market crashes.
Income goals
My personal income goal is to have between 72-84K in income generated from investments. Currently I am at 70K, annual income.
Below is my portfolio and weighting of each position.
AAPL |
9.08 |
ABBV |
3.47 |
ABT |
0.84 |
ACN |
2.92 |
ADP |
1.27 |
AMGN |
2.03 |
AMZN |
1.87 |
APD |
2.17 |
ATVI |
0.30 |
BA |
0.17 |
BAC |
0.91 |
BAC-B |
0.64 |
BAC-K |
0.21 |
BAC-L |
0.58 |
BANC-D |
0.94 |
BK |
0.55 |
BMY |
0.86 |
CCI |
0.20 |
CL |
1.32 |
COST |
1.61 |
CRM |
0.19 |
CSCO |
1.17 |
CVS |
0.78 |
DUK |
2.21 |
FB |
1.41 |
GD |
0.77 |
GIS |
0.70 |
GOOGL |
2.43 |
GS-K |
0.72 |
GS-N |
0.41 |
HD |
1.62 |
JPM |
5.10 |
KEY |
0.77 |
KMB |
1.27 |
KO |
1.33 |
LMT |
0.73 |
MA |
1.32 |
MSFT |
5.08 |
NEE |
3.32 |
NKE |
1.01 |
NLOK |
0.69 |
NLY-D |
0.40 |
NVDA |
0.21 |
PEP |
3.03 |
PFE |
1.05 |
PG |
0.81 |
PNC-P |
0.26 |
RNP |
1.36 |
SBUX |
2.63 |
SO |
4.41 |
T |
3.26 |
TROW |
1.75 |
TTWO |
0.65 |
UPS |
2.41 |
VZ |
1.06 |
WELL |
0.82 |
WFC |
0.43 |
WFC-L |
6.35 |
WFC-X |
1.20 |
ZTS |
0.63 |
Cash |
2.33 |
TOTAL |
100.00 |
Analyst's Disclosure: I am/we are long GOOGL, AAPL, JPM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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