Here are the seven criteria that my investment club uses to decide on stocks to add or remove from our portfolio. I'll give a brief description of the criteria. If you have any questions please leave a comment.
1. Number of Stocks: 16 stocks plus or minus 4. This is enough stocks to be diversified but not too many to follow.
2. Company Size: Large Cap stocks 50%, Mid Cap stocks 25%, and Small Cap stocks 25%. We want stocks of all size because one never knows what are going to be the next ones to increase. Our weighting towards Large Cap is a bit more conservative than I would like. We have had problems finding Mid and Small Cap stocks so this forces us to keep looking.
3. Sectors: We use 10 different sectors as defined at Manifest Investing. Our goal is to have no more than 25% in any one industry and no more than two industries with no stocks. This helps to make sure we aren't loading up on stocks in one sector.
4. Portfolio PAR: PAR stands for Percentage Average Return. PAR is our estimate of the return we might expect from a stock. We also use Manifest Investing to give us an estimate of the weighted average PAR. We look for portfolio PAR to be 5 to 10 percentage points above the median PAR of all the stocks in the Manifest Investing data base.
5. Portfolio Quality: Manifest Investing has a method of measuring the quality of the companies. We expect our overall quality for the portfolio to be above 65 (Excellent).
6. Portfolio Sales Percentage Increase: We look at the weighted average percentage expectation of the increase in sales for the portfolio. We want it to be between 10 and 14 percent - generally toward the high end of the scale.
7. Individual Stock Percentage: We don't want any stock to be more than two times its proportional share nor less than 1/2 that same share. For example, if there were 10 stocks in the portfolio a proportional share would be 10%, therefore, we won't want any stock to be more than 20% nor less than 5% of the portfolio.
It's always fun trying to balance all of these.
1 comment:
I like your ideas for your club. We might have to adopt some of them for our club. Thanks!
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