Week 209 - 2015 Master List

Situation: We scour the internet to find quantitative data that will help you invest for retirement. How you invest is your business but we think index funds are the way to go. Those have drawbacks (i.e., tracking only the US economy, amplifying “crowded trades” and generating dividends that don’t quite keep up with inflation). If you want to correct those shortcomings, you’ll need to dollar-average into at least a dozen buy-and-hold stocks.

Mission: Screen for buy-and-hold stocks.

Execution: We’ve found several tools that can keep your risk low, when used in tandem. Briefly, we screen out stocks that:
   1. lost more than the bond-hedged S&P 500 Index fund (VBINX) during the Lehman Panic (see Column D in any of our tables);
   2. didn't improve their rank in the 2015 Barron’s 500 List or rank in the top 250 for both 2014 and 2015;
   3. don’t meet several BMW Method criteria. Those criteria are based on using weekly stock prices over the past 20 yrs to establish a log-linear CAGR, and comparing that CAGR to that for the S&P 500 Index (^GSPC). We look for stocks with a higher CAGR than ^GSPC, stocks that track ^GSPC to within one Standard Deviation (1SD), and stocks with a predicted loss in a future Bear Market of under 40%, which would occur if prices fall by two Standard Deviations (-2SD);
   4. don’t have an S&P bond rating of at least A-;
   5. don’t have an S&P stock rating of at least A-/M.
Almost all stocks that clear those hurdles will turn out to be S&P Dividend Achievers, meaning that the dividend has been raised annually for at least the past 10 yrs.

Bottom Line: This week’s screen turns up 16 stocks that “beat the market” (see Table). Only 3 of those (Johnson & Johnson, Nike, and PepsiCo) are in the S&P 100 List of “mega-cap” companies. Why? Because the price performance of stock in such an unwieldy company is at a competitive disadvantage over long periods vs. stock in a smaller and more nimble company. Why do you need to screen out stocks that haven’t demonstrated an ability to beat the market? Because your money will go farther if you put it in the market, i.e., into the lowest-cost S&P 500 Index fund (Vanguard’s 500 Index Fund, VFINX) or a bond-hedged S&P 500 Index fund like the Vanguard Balanced Index Fund (VBINX). 

Risk Rating: 5

Full Disclosure: I dollar-average into NEE, NKE and JNJ, and also own shares of PEP.

Note: metrics highlighted in red denote underperformance vs. our key benchmark (VBINX); metrics are current for the Sunday of publication.

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