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Pseudo-Random High Dividend Yield Stock Pick Performance - Jan 2021

Jan. 06, 2021 1:10 AM ETAIV, HCAP, IEP, SELF, SHLX, TAIT, USAC
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Seeking Alpha Analyst Since 2020


  • What kind of performance can pseudo-random stock picking offer?
  • Consider all the "research" an investor can do only to see their value disappear like a fart in the wind.
  • Pseudo-random stock picking, especially with a few simple criteria, can be done in less time than it takes to eat a lunch meal.
  • "Just fuh-get about it!"

Investors can spend hours upon hours researching markets, industries, companies, business leaders, and politics. Hundreds ... nay, thousands! ... of books have been written on investment strategies and principles and on economic theories. The internet is chock full of stock screener applications, "hot tips", and "breaking news". Despite all of this and more, many people lose lots of money, sleep, time, and health due to investments that fail. The failure can be attributed to anything from unpredictable events like terrorist attacks and pandemics to a lack of patience in investors who panic at even the slightest drop in price to bad management that bankrupts a company. Even in the best circumstances investors have to weather wild swings up and down only to come out with average to above average performance. Those who grow their portfolio's value by 40% or more every year are extremely lucky and of a rare breed. After all, if it was that easy then wouldn't all of us be super rich?

Where on the one hand sits the idea of a dedicated investor toiling in developing their strategy, picking their investments, and monitoring their performance there is another idea that says picking stocks at random and holding onto the investment can offer comparable or at least "acceptable" performance. The word "acceptable" is relative to our expectations. Some would be happy getting better returns than a savings account. Others want to match the typical 6% - 8% long term performance of the total market performance. A few may only be satisfied with double digit growth. However, consider that random stock picking can be done in less time than a quick lunch and with less effort than preparing that lunch.

Is random stock picking any different than what many people do with their 401(k) plans? Many folks at my work divide up their contributions between funds like equity, target date, bonds, international, and blue chips among other non-descript options. The general growth of the funds plus the tax benefit and the company contribution keeps us all fat, dumb, and happy but for the most part we don't really know what's in the funds. It might as well be random investing at that point. Amazingly, it all works and everyone is generally happy - me included, oddly enough!

I say oddly enough because I am the kind of person who loves to pour over numbers, reports, statements, and news articles. Following trends and movements is like reading a page turning book where I am held in constant suspense. What happens next? Who wins? Who loses? I am fascinated by the carnival of life and how the whole world seems to chug and grind forward despite humanity's best effort to crack the planet in two. When I buy stock I feel like I am buying a piece of the business and that piece belongs to me - no matter how small it may be. I want to understand what I own and, more importantly, why I own it. It gives me a sense of pride as a shareholder of Bank of America when I walk into my local branch or as a shareholder of Coca-Cola seeing someone chug down their signature drink. When the story works then the investment works and I keep the investment while it all works. If I invest into something "risky" then I do it eyes wide open. When the market tanked in March I gleefully pulled out my checkbook and dumped money into Tesla, Amazon, Enphase, and Citigroup. These "value" moments come but once in a while.

Now with all that said, the question remains : does random stock picking offer any sort of "acceptable" performance? Let's put the question to test here. Every month I am going to pick $100.00 worth of stocks and hold on to them for a period of 1 year. I am going to cheat a little bit in my picks and limit my stock selection according to these two criteria.

  • The company must be based in the US.
  • The company must pay a dividend of some sort.

I entered this into Fidelity's stock screener and got a list of 1,655 stocks. Since I limit my pool to 1,655 stocks and I can easily sort by the yield, my picks by their nature will not be purely random but will be pseudo-random. Why should i go for the $3/share security paying a 2% dividend when I can pick the $3/share security that claims to have 7% yield? I'll go to the top of the list and simply pick my way down. All dividends will be reinvested in the same stock. I will also limit myself here to holding one share. That enables a little of diversification (di-WORSE-ification?) to even out some of the inherent risk. 

So, what did I pick?

Name Symbol Price / Ea
Apartment Investment & Mgt AIV $5.06
Harvest Capital Credit HCAP $7.63
Shell Midstream Partners SHLX $10.48
Icahn Enterprises IEP $53.87
Self Storage Inc SELF $4.05
Taitron Components TAIT $3.21
USA Compression USAC $13.65
Cash SPAXX $2.05
Total $99.99

From a pool of $100.00, I bought one of each and was left with $2.05 that is swept into Fidelity's money market fund.

Let's see what this little "January" portfolio does next month. There probably won't be any dividends paid out until February or March so the only growth will be from price appreciation. Don't forget that next month another small handful of pseudo-random stocks will be picked to create a "February" portfolio.

I will close this post with a disclaimer of sorts. It is understood this is not a perfectly random stock selection exercise. Hence, it is called pseudo-random. However, no research into any of the companies or their was performed. AIV could have VIA and IEP could have PEI. Whatever. These just happened to have the highest dividend yields. The sample size of seven is hardly representative of the total stock market or even the 1,655 stocks Fidelity's screener found. Then again, not everyone can afford to buy thousands of dollars of stock or have hundreds and hundreds of positions. At that point just buy a total market ETF and be done with it all.

Analyst's Disclosure: I am/we are long AIV, HCAP, IEP, SELF, SHLX, TAIT, USAC.

I'm not a professional investor and I'm probably the last person anyone should ask for investing advice. This was written by me as an exercise in expression and out of curiosity. Please keep this in mind.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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