I gained so much insight into value investing from this board that I wanted to share how I use the BMW principles and make them work for me.
I have posted these ideas in the past on this board, so I guess this is an update.
I have been using these parameters for the past three years using "BMW stocks" and have been in positive territory for each year. Even though 2008 was +2.45%, it beat my managed portion of my portfolio ( down 39%)!!
I guess I will start with a little history that will surely tickle Icy's toes. He knows how I hate to do due diligence where as he relishes it, so I needed to find the professional know how to perform this task. He also knows that I am an MI'er at heart so I wanted to find a method that requires no thinking on my part!!
I started this quest when the screens started to fail me and I wanted to find a method that allowed me to hold stocks longer than two seconds. I found the BMW board and my ideas started to gel.
For my BMW stocks, I used Morningstar to locate the stocks that began my search. I developed a screen with these parameters:
1. http://www.morningstar.com/ (a subscription is needed) Morningstar 5* stocks, B or Better in Growth, Profitability and Financial Health. This covered my part of "due diligence". I figured Morningstar was a lot smarter and has a lot more talent than I could muster.
2. http://moneycentral.msn.com/investor/StockRating/srsmain.asp... (free). As a check, I used the stock scouter. The stock need to have a rating of 8 or better for its current rating and a 7 or better in the past 3 time periods which are given on the page if you scroll down. This was my double check for "due diligence"
3. http://www.grahaminvestor.com/ (free) I used this site to ensure that the stock was indeed a good value (my analysis). The stock needed to have an Altman rating of 3 or better (to weed out those companies who are shaky.. another attempt at "due diligence'. The stock also needed to have a forward intrinsic value of 50% or more from its current stock price. This gave me a tangible number of its upside potential which allowed me to eliminate many marginal stocks.
4. BMW chart (I have a spreadsheet.. can share if requested) or use http://invest.kleinnet.com/bmw1/index.html for ones produced by Mike (free) You can go on the BMW board and request other charts. My requirement is different from the regular BMW'ers. The stock needs to have data for 15 years or more, but I will buy a stock if it is -1 SD where others will wait longer.
5. Sell when the Stock Scout rating falls to 6 or lower. Easy.
6. If stock price drops 10%, buy an additional 2x shares. If it drops again from the new price, buy an additional 2x shares. I have not needed this second cushion. When I buy my initial shares, I allow for a 1, 2, 2 potential purchase. For example, if I was initially buying $1000, I would have set aside potentially $5000 for this stock. It should be noted that I do not add to my position if the stock cannot pass parameters 1-3. This limits my risk in doubling. Icy asked if I keep the extra money in the mattress or is it virtual. In my head, I know how much I am willing to spend on any holding so I guess it is both virtual and real. I am sitting with a lot more cash than I would prefer because of difficulty in finding stocks that meet my goals so this year I increased what I am willing to spend on a stock to hopefully reduce some of my cash. I ended last year with: APH, BIIB, ESI and MSFT. All stocks were in positive territory. During the year I bought and sold others. Starting 2010, only ESI remains as of 1/2010. I have not sold the others as they did reach my sell criteria so they have been moved to a wait to sell portfolio. ESI met the criteria at the beginning of the year so it is the only stock in the 2010 portfolio. As I already owned the stock, I used the opening price on 1/4 as a beginning price. ESI is one of those stocks that I had to double during 2009. It is now showing a nice but small gain!!
This is how I formulated my original plan.
Marjory (aka nyua)