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This article is part of our Rising Star Portfolios series.
Greetings, fellow Fools! I'm honored and humbled to be handed $17,000 of the Fool's cash to invest in a real-money portfolio. Let me briefly explain what you can expect from this all-screening, all-encompassing, all-fun adventure.
The first thing you should know is that this portfolio can serve as your complete guide to the stock portion of your overall asset allocation. You could, if you wish, copy the recommendations here, and you'd have a well-balanced and diversified stock portfolio. I'm designing it to carry an overall low or medium amount of risk, while still striving to beat what you could get from an S&P 500 index fund. We'll be buying a mix of large caps and small caps, domestic and international, stable dividend payers and high-growth Rule Breakers. You can pick and choose only what you're interested in or mirror it entirely.
Of course, no model portfolio designed for the masses could be a perfect fit for you, but it's also my hope you'll learn enough along the way to adjust to your personal needs and goals. Which brings me to ...
As well as giving you a few fish, I promise to teach you how to do things yourself. We'll keep things fairly basic, and we won't be getting into any exotic instruments, like the reverse-humpback-strangled-call-straddle. I'll strive to explain things clearly, and you can simply ask about anything you don't understand.
We also have our own Fool discussion board, and I really hope to see some fun and interesting stuff break out there.
Screening for winners
This portfolio will rely entirely on screens to generate our stock ideas -- but only the ideas. Each portfolio candidate will be put through a thorough fundamental analysis, and we'll base our actual buys on that analysis.
Screening has become a large part of the fundamental process for me. Over the years, I've developed several that help me find stocks that carry the finest of our broad Foolish ideals.
For instance, in looking for dividend payers, I follow the advice I've gleaned from our Income Investor service and consider only companies with a payout ratio below 60% that have grown their dividend over the past three years. This goes a long way toward avoiding shaky companies that might eventually cut or suspend their dividend -- an action that usually devastates the stock price. A screen is just the thing for narrowing down the candidates. One click of the mouse shows me some high-yielding companies that meet these criteria, including Exelon (NYSE: EXC ) , Public Service Enterprise Group (NYSE: PEG ) , and Dominion Resources (NYSE: D ) , which is already an Income Investor recommendation.
Another example: In looking for value stocks, I try to avoid the low-growth, high-risk value trap. I require a reasonable minimum threshold for earnings growth, as well as total debt less than 60% of capital. My latest screen with these criteria brings up a slew of candidates, including Micron Technology (Nasdaq: MU ) and Intel (Nasdaq: INTC ) in the tech world, and Teva Pharmaceutical (Nasdaq: TEVA ) and Gilead Sciences (Nasdaq: GILD ) in health care.
This should begin to show you the incredible power of screening -- we can tailor a screen to fill any need in our portfolio, using only the soundest of fundamental criteria. Once we have a list of promising candidates, we can busy with our due diligence.
From here ...
I only gave you a couple of examples above and didn't go into much detail. I'll explain things more completely as we go through the actual process. In my next installment, I'll discuss the allocations we're aiming for, and bring in a few candidates for our first purchase. Until then, drop by the discussion board and say hello!
This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. Click here to see all of our Rising Star analysts (and their portfolios).