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A place for Get Rich Slowly readers to ask questions
and exchange ideas
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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 5:52 pm 

Joined: Wed Nov 07, 2012 6:21 am
Posts: 141
Sure. Monthly updates it is.

Just so we're clear, Vanguard Total Stock Market ETF is what you have on your side of this, right?


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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 6:02 pm 

Joined: Wed Nov 07, 2012 6:21 am
Posts: 141
By the way, what $ amount are you valuing the portfolio at? I only ask because the smaller it gets the more heavily the commissions take their toll.


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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 6:07 pm 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1755
Matthew Clinger wrote:
By the way, what $ amount are you valuing the portfolio at? I only ask because the smaller it gets the more heavily the commissions take their toll.

If I'm not mistaken, your book's author asserts in both editions that the small investor having as little as ten grand can utilize these methods just as easily as institutional investors. He suggests that the playing field has been leveled because of flat fee trading via internet brokerages. You wanna start with that? If not, what do you suggest? Remember, you need replicate a real-life scenario. If you want to start with a larger number so that you can lessen the impact of of commissions, we'd have to assume that you'd actually save up that much before taking the plunge.

Also, what state do you live in? We need to ensure that we appropriately apply state income tax to both dividends and capital gains.

Oh, and what tax bracket do you want to be in? It would realistically have to be high enough to allow you to have enough money left over to invest.


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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 6:09 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
Matthew Clinger wrote:
That you have missed the information I have presented here and there or simply left it out doesn't surprise me. I almost feel like I have to speak like I would to a kid 5 years old in order to pass any information to you. There has been information posted, no matter how much you may consider it to be of limited worth in this forum. To say that it might not be that helpful to you or that it is a small amount compared to the larger amount of information available to me would be accurate. However, if you can't remember anything I have posted here in regards to value investing, is there any point to this? If you want me to teach you value investing using generalities, I am willing to do that. If you want a private showing of all that goes into me making one of my portfolios, that's also possible. Just what information is it that you want?


you have said the word "value" a lot. But let's talk what your methodology is, just not the words. In summary, you've brought nothing to the table about value investing other than some untruths.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 6:27 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5293
Matthew Clinger wrote:
By the way, what $ amount are you valuing the portfolio at? I only ask because the smaller it gets the more heavily the commissions take their toll.


I picked $20000 arbitrarily. But I can easily change that. What do you suggest? But let's be fair and make it something an ordinary individual might invest to test your idea. I'm also using $9.95 commissions which is what I pay.


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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 6:44 pm 

Joined: Mon Feb 04, 2008 7:35 am
Posts: 1148
Location: Maryland
I'm glad you're doing this DoingHomework. Today at work I was considering it, but I have a busy weekend ahead, and won't get a chance to look up everything and input everything. I'll also be curious to see both of you do on this challenge.

"May the odds be forever in your favor!"-Hunger Games


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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 7:05 pm 

Joined: Wed Nov 07, 2012 6:21 am
Posts: 141
VinTek wrote:
you have said the word "value" a lot. But let's talk what your methodology is, just not the words. In summary, you've brought nothing to the table about value investing other than some untruths.


Okay, on my methodology. I have 4 different formulas that I use on 6 of the 10 market sectors (2 instances of 2 sectors each sharing 1 formula). I use stocks listed on the US stock exchanges with a minimum market cap of 200 million. I eliminate stocks that are very low volume because I want people to be able to move in and out of the stocks fairly easily. I eliminate various stocks in the financial sector merely because I have noticed those types of stocks tend to under-perform (Such as REIT's, diversified investments, and closed-end funds). My formulas includes some or all of: the price-to-earnings ratio, the price-to-free cash flow ratio, the price-to-sales ratio, and the price-to-book ratio. The sectors I pick from do well when using value investing and 5 of the 6 sectors have beat the market returns using regular sector returns over a period of more than 40 years. These 6 sectors also contain the top 3 (and one of the 2 sectors tied at 4th) when ranked by sector sharpe ratio.

According to the book, using value investing both significantly raises profits and the sharpe ratio. The sharpe ratio is a tool used for risk-assessment (just one among many that people might use). This is based on return and standard deviation. The standard deviation is not much different from the market in general, which is why the increase in expected return raises the sharpe ratio.

When looking at this, the book largely considers the information in deciles, which are groups of 10%. To make its case, it will often compare Decile 1(made up of the top 10%) to Decile 10 (made up of the bottom 10%). Occasionally, there will be charts showing all 10 deciles. While the individual ratios (such as the P/E ratio) are shown in deciles, the sector results are shown in quintiles (groups of 20%), likely because of the huge variances in sector size.

So anyways, the sector is compared against itself when considering what methods do and do not work for value investing for that sector (on pages 501 to 545 for any of you who decide to get the book). I basically went in, took the sector results, and made my formulas based off of that. However, I also kept an emphasis on how these stocks were doing when compared to all the other stocks. This combination of sector formulas and ranking the ratios based on the market as a whole is one of the big things about my process of stock selection.

Between this and what I have posted before, all that's missing is one of my remaining reasons for eliminating stocks and the exact formulas used, so I hope you are satisfied with this.


Last edited by Matthew Clinger on Thu Nov 08, 2012 7:23 pm, edited 1 time in total.

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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 7:14 pm 

Joined: Wed Nov 07, 2012 6:21 am
Posts: 141
VinTek wrote:
If I'm not mistaken, your book's author asserts in both editions that the small investor having as little as ten grand can utilize these methods just as easily as institutional investors. He suggests that the playing field has been leveled because of flat fee trading via internet brokerages. You wanna start with that? If not, what do you suggest? Remember, you need replicate a real-life scenario. If you want to start with a larger number so that you can lessen the impact of of commissions, we'd have to assume that you'd actually save up that much before taking the plunge.


VinTek, that is the number he uses in the series of portfolios that start 40+ years before the result. How about figuring out what 40 years of inflation brings it to? That would be more equal to comparing it to the book's start. Could it be done at 10k? Sure, but that's stretching it rather tight, requiring either a smaller portfolio or a greater % taken out for brokerage fees. My ideal starting place personally is 1k per stock in the portfolio. However, that's just the ideal. I know the reality is that I will likely start much nearer to 10k.

DoingHomework, 20k is fine. No need to change that.


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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 7:21 pm 

Joined: Wed Nov 07, 2012 6:21 am
Posts: 141
Peachy, I rather liked the Hunger Games series.. until that crap ending. That ending made me regret ever having bothered with reading the trilogy.


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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 7:58 pm 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1755
Matthew Clinger wrote:
VinTek wrote:
If I'm not mistaken, your book's author asserts in both editions that the small investor having as little as ten grand can utilize these methods just as easily as institutional investors. He suggests that the playing field has been leveled because of flat fee trading via internet brokerages. You wanna start with that? If not, what do you suggest? Remember, you need replicate a real-life scenario. If you want to start with a larger number so that you can lessen the impact of of commissions, we'd have to assume that you'd actually save up that much before taking the plunge.


VinTek, that is the number he uses in the series of portfolios that start 40+ years before the result. How about figuring out what 40 years of inflation brings it to? That would be more equal to comparing it to the book's start. Could it be done at 10k? Sure, but that's stretching it rather tight, requiring either a smaller portfolio or a greater % taken out for brokerage fees. My ideal starting place personally is 1k per stock in the portfolio. However, that's just the ideal. I know the reality is that I will likely start much nearer to 10k.

Would that mirror real life? Let's say you get a decent job right after you get your degree. How much could you pony up to start your portfolio and when would you start?


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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 8:08 pm 
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Joined: Wed Sep 23, 2009 9:01 am
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I've been setting up a spreadsheet to track this and I've realized we need a few additional rues/policies. I propose these:

Only full shares of stock are purchased and the number is determined by dropping the fractional shares that would have been bought using exactly even amounts in each stock. This means the proportions will not exactly be equal and the value portfolio will have a bit more cash.

Dividends will not be reinvested but will be kept in cash

Cash will earn no interest

If you disagree with any of these please let me know. They are mostly to cut down on the work required to track this. The first one gives a slight disadvantage to the value portfolio because it results in $114.40 less cash invested initially. If you prefer I can initially buy one more share of a couple of stocks. You pick.


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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 8:30 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
you also need to decide if this is a tax sheltered account or not. I guess it may not make a difference, depending on how long this goes. When the best value investor in the world hits his Cramer sell and buy button, you're most likely creating taxable events if outside of tax sheltered accounts.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 9:14 pm 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1755
Bichon Frise wrote:
you also need to decide if this is a tax sheltered account or not. I guess it may not make a difference, depending on how long this goes. When the best value investor in the world hits his Cramer sell and buy button, you're most likely creating taxable events if outside of tax sheltered accounts.

Wouldn't be practical for it to be an IRA, since he would be limited to putting in $5K the first year. And having 2 portfolios (1 tax sheltered and 1 non-sheltered) would be more work than it's worth. I'd like our college boy to get a taste of real life.


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 Post subject: Re: Stock Portfolio
PostPosted: Thu Nov 08, 2012 9:37 pm 

Joined: Wed Nov 07, 2012 6:21 am
Posts: 141
Ticker Shares
XRX 241
GPK 260
SUP 89
BAS 62
CLD 78
AIZ 42
BRP 90
PL 59
PRU 27
RGA 29
SYA 134
HUM 22
WLP 26

There's 4 extra shares there at Nov 7th's prices. That leaves me enough for the entry fees and enough left over to make 1 sell, which in turn gives me all the money I need to sell the rest. Agreed on not reinvesting the dividends. Agreed on cash earning no interest.


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 Post subject: Re: Stock Portfolio
PostPosted: Fri Nov 09, 2012 4:16 am 

Joined: Mon Feb 07, 2011 6:33 pm
Posts: 1131
Location: Illinois
Matthew Clinger wrote:
That leaves me enough for the entry fees and enough left over to make 1 sell, which in turn gives me all the money I need to sell the rest.

You know, you don't actually have to have money set aside to pay the fee for a sale. It's just taken from the proceeds of the sale.


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