Friday, February 21, 2014

Investing strategy for children

A month ago, I was up on the Motley Fool web site and I read the following:

I just read this, "Start them without their knowledge. Just begin before they're old enough to ask about it! CromulentBrad's parents did this, buying shares of several companies they related to when he was little. Later, when he found out, it was exciting to see his holdings grow bigger almost automatically. He's planning to do the same thing for his 19-month old daughter.”

That seemed pretty cool, so I wrote a relative with young children and asked, "If you have the spare time, can you think of 5 - 10 companies the kids identify with. Would it make more sense to have two lists, one for each?"

And the reply was:
- Nickelodeon. Owned by Viacom. VIA
-Hmm Target TGT
-Cheerios made by General Mills .GIS
- Leap Frog..LF.. 
-Hershey ..they love chocolate milk HSY
-Suave.. There kids shampoo/ body wash owned    by bath and body works ..BBW
- Tide P&G

All of these products they readily identify with by name and use. You have come up with a very cool idea indeed! 

Now we all know that some of these products only account for a fraction of the revenue of some of these products is only a small component of the total revenue of the company, but that is not the point. The point is to get them thinking about investing.

Let's do a quick analysis.

  • VIA, they are loaded up with too much debt for my taste, let's pass on this one.
  • TGT, more debt than I like to see, but they have dropped a lot, partly because of the data breach, and that retail store has a loyal following. LC was 56.37. 5 shares for each kid would run 281.85
  • GIS, again more debt than I like to see, but Cheerios is an enduring brand 5 shares would be around 248.1
  • LF, largest children's tablet maker, market has beaten this down. Say 40 shares.
  • HSY, low dividend  yield, high debt, not a compelling purchase, however, they have a go to market strategy of becoming international. 2 shares apiece.
  • Bath and Body is privately held, nothing to do there.

M + S (each, please reinvest dividends)
5 TGT market 281.85
5 GIS market  248.1
40 LF market 280.00
2 HSY market 215.16
4 trade fees = 36
1061.11 let's round to 1075 each

2,150.00 total.

UPDATE 2/5/15 Just read an article in Seeking Alpha titled The best gift you can give is stock. Since I have already taken action, I am not going to do any more. But it did make me smile.

Wednesday, February 5, 2014

FIs A portfolio strategy based on Jim Collin's Built to Last

2/23/14 in Built to Last the comparison company to Johnson is Bristol Myers, (BMY). Let's look at the relative performance of the two:
              30         90       180     1yr         5 yr      10yr
JNJ         -2.97    -3.92    3.69    20.08      67.46    71.7
BMY      -1.21     1.37   29.95    46.71    165.18    91.5

Let's look at debt to assets, P/E and dividend yield
JNJ     ?         19.03    2.88
BMY  21.61   34.91    2.66

The Built to Last corporate responsibility part of the thesis clearly does not work in this case. Do we add BMY to the fold? Yikes, tried to buy, but the online broker was down, will set a Google calendar entry for Monday.

2/11/14 Been pondering the notion of building a company designed to succeed.  Was reading about some of the things Google is up to. Obviously Google has not been in business 50 years, however that begs the question, how likely is Google to be around 50 years from now. Just pondering.

2/7/14 Sony plans to sell their VAIO product line. They are also losing money. They may well be the first replacement from the original Built to last list.

2/6/14 Closed energy positions: APA, ENPH, EOG, EXC, now we are ready to go with the new strategy, first up for consideration is 3M.

  • MMM This was one of the first 10 stocks I purchased in my investing career and have held it about 30 years. Meets the criteria and the fundamentals look fine. This is a good time to pick this up and open a position. 20@Market. Last Close (LC) 127.36
  • American Express, (AXP), meets the criteria, in a heck of a great industry, have a bit more debt that I would like to see. Let's try a conservative limit, 20L@83.00 LC 83.70
  • Boeing (BA), what's not to like, I live in Seattle :) Biggest downer, they have very aggressive accounting practices, sooner or later they will get taken to the woodshed. Everything else is pretty square. 20 L@120, LC121.4
  • Citibank, (C), has a high beta, 2.71, let's see if we can get lucky with a mildly aggressive limit, 40@L46, LC47.06
  • Ford, (F), great company, I have owned 2 F150s and currently have a Mustang GT 5.0, however, they have a lot of debt, going to pass for now.
  • General Electric, (GE), will go for an aggressive limit, 130@L22.00 LC24.52
  • HP, not sure they meet the criteria, hold
  • IBM, this is actually one of my largest holdings, 15@M LC 174.24
  • JNJ, 30@M LC 87.28
  • Marriott, (MAR), I have never followed this company. Pass till I get my homework done. LC 47.89
  • Merck, (MRK), do not know if they meet the criteria, Pass. LC 53.53
  • Motorola, pretty durn sure we will need a replacement
  • Nordstrom
  • Philip Morris
  • Procter & Gamble. (PG), Looks like a decent buying opportunity, 40M LC 76.45
  • Sony, (SNE), I do not think they are a market leader anymore, probably need a replacement
  • Wal-Mart, (WMT) 30@M LC 72.87
  • Walt Disney, (DIS), 30@M LC 71.76


I was rereading and couldn't get the table of the companies used in the study out of my head. The market is off just a bit, so maybe it is time to create a new basket. These companies, at the time of the writing, met the following criteria:

  • Premier Institution in its industry
  • Widely admired by knowledgeable businesspeople
  • Made an indelible imprint on the world in which we live
  • Had multiple generations of chief executives
  • Been through multiple product (or servicer) life cycles
  • Founded before 1950 (or has been around 50 years)

The companies they selected for the book:

  • 3M
  • American Express
  • Boeing
  • Citicorp
  • Ford
  • General Electric
  • Hewlett-Packard
  • IBM
  • Johnson & Johnson
  • Marriott
  • Merck
  • Motorola
  • Nordstrom
  • Philip Morris
  • Procter & Gamble
  • Sony
  • Walmart
  • Walt Disney
We sold our house in Richmond Va and I would like to put some of the proceeds to work. I have an online brokerage and I could never really excited over the strategy for that basket, (energy). In fact, I have only established four positions, but am up a bit over 6% which is a blessing. Tonight I will close out those positions and begin the new basket. Now we need to establish the strategy.

Built to Last Strategy

Each of the companies listed is automatically on the watch list, but so are their comparison companies.  The ones that appear to still meet the criteria will have small positions opened, (large enough so that the trade fee is < 1%). We will use the observations in the book to determine how much of the basket any given equity will be added as well as the rules of the basket.

Rules of the Basket

  • There are 18 companies on the original watch list, so we will say there is room in the basket for up to 40 equities, (if we include the comparison companies).
    • Therefore, new companies that meet the criteria can be added to the watch list
    • Therefore, new companies that no longer meet the criteria can be removed from the watch list and the basket
    • Therefore, it takes extreme merit to exceed 5% of the basket
  • Money may sit on the sidelines waiting for a buying opportunity
  • Equities can, ( and almost certainly will), be present in other baskets
  • Additional information such as dividends, fiscal responsibility including debt load, P/E, analyst recommendations, etc may be factored into the analysis, but the criteria take precedence.