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Monkey Business
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Graham's Simplest Way
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High Performance Graham
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Dividends at Risk
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The New Dividend
Hunting Goodwill
SPPs for 2003
RRSP: don't panic
Desirable Dividends
Stingy Selections 2003
10 Graham Picks
Growth Eh?
Timing Disaster
Dangerous Diversification
The Coffee Can Portfolio
Down with the dogs
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Graham Revisited
Just Spend It
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Cdn Top 200 2008
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Value that sizzles
So simple it works
Income 100
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Car bites dogs
Cdn Top 200 2006
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So easy, so profitable
Top Trusts 2005
Dogs of the Dow
Top 200 2005
Money for nothing
Yield of dreams
Return of the master
Norm Speaks
Stock picking contests are both fun and frivolous. The typical approach is to pick a few high-risk securities and, if possible, to use massive leverage. While this might be a good way to play the game, it makes for lousy investing.
In an effort to avoid speculative success, I only use S&P500 stocks with betas of less than one. Beta gauges how much a stock's price fluctuates and is often used to measure risk. A beta of one is average and lower beta stocks are less risky.
Companies with little debt are also less risky. I require a stock to have a debt-to-equity ratio of less than 0.5 and a ratio of current assets to current liabilities of more than 1. The ability to pay interest on the debt is ensured by requiring an interest coverage of more than 2, a positive cash flow and some earnings.
As always, a low price is a must and only those stocks with a price-to-sales ratio of less than 1 are selected.
With the aid of the MSN.com stock screener twelve stocks were found that passed my tests on December 5, 2001.
Stingy Picks: Alberto-Culver (ACV), Allegheny Technologies (ATI), Cardinal Health (CAH), CVS Corp (CVS), Engelhard (EC), FedEx (FDX), Humana (HUM), SYSCO Corp (SYY), VF Corp (VFC), W.W. Grainger (GWW), WellPoint Health Networks (WLP) and Worthington Industries (WOR)
Now, any good stock picking contest is incomplete without a necessary nemesis. The dartboard. I took the list of S&P500 stocks with betas of less than one and threw twelve darts at it. The result was a mangled list and twelve randomly selected stocks.
The Dartboard's picks: Alberto-Culver (ACV), Big Lots (BLI), Burlington Resources (BR), Charter One Financial (CF), Citizens Communications Co (CZN), FMC Corp (FMC) HCA Inc. (HCA), Hercules Inc (HPC), Lincoln National Corp (LNC), Meredith Corp (MDP), UnitedHealth Group (UNH) and Zions Bancorp (ZION).
Which portfolio will win? Value or blind luck? Only time will tell.
Talk to your financial advisor before buying, selling or holding any security.
Date: Jan 2002
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A Dan Hallett and Associates Inc. publication. Norm Rothery, Ph.D., CFA, is the Chief Investment Strategist at Dan Hallett and Associates Inc. (DH&A) and the founder of StingyInvestor.com. DH&A is registered as Investment Counsel in the province of Ontario. Norm, DH&A, or related-parties may have an interest in the securities mentioned. More...