Investment Club - June 2010

Five members in attendance at this meeting.  Terry presented a new stock to the club, American Science Engineering (ASEI).  The company engages in the development, manufacture, marketing, and sale of X-ray inspection and other detection solutions primarily for homeland security markets in the US and internationally.

Number of Stocks:  14 (goal is 16 plus or minus 4)

Company Size:  Large, Mid and Small are all out of tolerance.  We need less large and more mid and small.
Sectors:  All in tolerance except for Technology.  We need less technology but are getting close to our goal of no more than 25% (now at 28.1%)
Individual Stock Percentage:  Two stocks Hornbeck (HOS) and Neutral Tandem (TNDM) are too low as a percentage of our portfolio.  Our methodology says that we need to sell or add more.  This is the first time since we've adopted this methodology we have TWO individual stocks out of tolerance.  Last month Sun Power (SPWRA) was too low and we decided to sell.
Percent Annual Return: in the sweet spot but on the low side
Quality: Good
Growth: in tolerance but on the low side

Individual Stocks analysis:  Two stocks are of concern.
Hornbeck Offshore Services (HOS) not only is too small a percentage of the portfolio but its PAR is just north of zero (was negative last month) and Neutral Tandem (TNDM) due to being a small percentage of the portfolio.


Our intent this month is to increase PAR and Growth while improving Mid and Small company size while addressing the stocks that are a small portion of the portfolio.

DECISION:  Sell all of Hornbeck (HOS).  The current long term outlook for the oil related stock is not positive and the club does not have enough information to determine if the market has over reacted to depress the price or if there is a fundamental long term down draft for the oil industry.  Removing HOS from the portfolio improved PAR if we use the funds to purchase a higher PAR stock.  The overall quality of the portfolio is improved as HOS quality is only 32 with 65 or higher being quality on this 1 to 100 scale.

Buy American Science Engineering (ASEI) with the proceeds from the sale of HOS and available cash.  ASEI has a PAR of 15, quality of 70.6, and a 16% growth rate improve all three of these factors.

Continue to hold Neutral Tandem (TNDM) although it is a small holding.  Our belief is that the price has been driven down unfairly by a recent lawsuit that has not been ruled in its favor.  TNDM is a well managed company so we plan to hold on and to add to the holding in the future.

Apollo (APOL) is on the hot seat for next month.  We don't like the fact that the government has taken of the college loan programs.  The government will most likely tighten down lending at the for-profit colleges like Apollo which will hurt profitability.  On-going lawsuits are another concern.

Investment Club - May 2010

Investment Club YenoM had an excellent meeting on May 17, 2010 with six members in attendance.  Carl presented a new stock to the club, U. S. Ecology (ECOL).  The company is one of the older firms that recycles of hazardous material (radioactive, polychlorinated biphenyls, etc) and not-hazardous industrial waste.  It services both commercial and governmental entities.


Number of Stocks:  14 (goal is 16 plus or minus 4)
Company Size:  Large, Mid and Small are all out of tolerance.  We need less large and more mid and small.
Sectors:  All in tolerance except for Technology.  We need less technology
Individual Stock Percentage:  One stock, SunPower (SPWRA) is too low.  That means we need to sell or add more.  This is the first time since we've adopted this methodology that an individual stock is out of tolerance.
Percent Annual Return: in the sweet spot but on the low side
Quality: Good
Growth: in tolerance but on the low side

Individual Stocks analysis:  Two stocks are of concern.
Sun Power due to low position and a very low quality rating and Hornbeck Offshore Services (HOS) due to a negative PAR and slightly low quality rating.


Our intent this month was to increase PAR and Growth while improving Mid and Small company size.

DECISION:  Sell all of Sun Power (SPWRA) and use the funds plus available cash to purchase U. S. Ecology.  Reasoning:  Sun Power is not a quality company (based upon Manifest Investing) and the news seems to indicate that their product is not cutting edge.  Their growth rate is around 6% which seems low for a company of this nature.  U. S. Ecology's PAR is in the upper portion of the sweet spot, is a quality company with better growth prospects than Sun Power.  So these decisions had the impact of improving overall growth potential and replaces a stock that we had lost our confidence in.

Investment Club - Jan 2010

Investment Club YenoM recently met with 7 members in attendance.  Our portfolio is in pretty good shape based upon the criteria we are using to manage it.  We need to add more small cap stocks that are not in either the technology or healthcare sectors.

We decided to sell all of our Linear Technology (LLTC) stock and use the proceeds of the sale and $1,000 in cash to purchase Neutral Tandem (TNDM).  Neutral Tandem is a company that provides “interconnection services principally to competitive carriers, including wireless, wireline, cable, and broadband telephony companies in the United States.”

We made these decisions for the following reasons:

Sell LLTC:

1.      Lowers our technology holdings which were above the amount the club set as the upper threshold

2.      No one in the club has the background to properly understand and follow the products produced by LLTC

3.      Eliminates the next to the lowest PAR stock in the portfolio (PAR was 8.3% vs portfolio PAR of 14.3%)
 
The only downside of selling LLTC was it lowered our percentage of stocks of the mid cap size - something we are trying to increase.  However, the positive aspects of reducing the holding outweighed this negative.

Buy TNDM

1.      Adds exposure to a new sector (Telecom)

2.      Increase our small cap holdings which were well below the targeted amount

3.      Increases the overall PAR for the portfolio (PAR for stock is 19.2% vs 14.3% for the portfolio)

Portfolio Management June 2009

My investment club met last night (Jun 8, 2009). We reviewed two new stocks and followed our portfolio management process. The overall shape of the portfolio is better than it has ever been so we decided to:

Sell our remaining holding in Lowes (LOW). The stock was our lowest PAR (percentage average return) and we didn't think the future looked good for the stock.

Buy additional shares of Fastenal (FAST). We purchased the stock a month or two ago and it still looks good and did not have a "full" position yet.

Buy an initial position in Apollo Group (APOL) with the $$ from the sale of Lowes. Apollo seemed to be the best company in the education group. We also considered Strayer and ITT.

Portfolio Management

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.