SBaus (42.26)

My investing philosophy

May 21, 2008 – Comments (1) | RELATED TICKERS: LXU , CAE , VSEC

I have been thinking of starting a financial blog using Blogspot or something similar but thought this may be a better choice.

So here is my philosophy... part Buffet, part Lynch, part Greenblatt.  I am a value investor who likes to see decent earnings growth, insider ownership, a low P/E, especially relative to the industry and recently have started looking at charts to see if it appears the stock has bottomed out.  More specifically if the price is above the 50 day moving average and the 50 day moving average is not going down.

For the last 2 or so years, I have followed Joel Greenblatts MFI method of investing.  I refined my stock selection method in January of 2008.  I now take stocks from the Magic Formula Investing website and use that list as a starting point.  I wrote a program that takes the list and goes out to various web sites and grabs data, such as the CAPS rating and Stock Scouter rating and then I search and sort the list to see if anything grabs my attention.  I also use the CAPS screener tool and usually screen on 4 and 5 star stocks, a PE of say 12 or less, earnings growth rate of 15% or more, insider ownership of a decent amount and then might add a minimum return on equity to the mix.  I then look at the industries for each stock, throwing out those I am not comfortable with and if I am lucky, 1 or 2 stocks survive.  My idea stock would be something with a PE less than 10, growth rates much greater than 10%, significant insider ownership, little to no debt and an industry that would bore you to tears.  Two current example of this would be LXU, which I own, and CAE, which is on my short list to buy.  Also on the short list is VSEC which has a slightly higher PE but also outstanding earnings growth rates.

I am not big on diversity, and by big I mean owning 30 or more stocks.  For years I only owned 3 or 4 stocks and did well.  I can deal with the volatility.  Currently I own about 20 stocks but that number will probably come down under 15, closer to 10 within the next year as I replace some of what I have with what I find and am more selective.  I try to spread out my purchases over the course of the year, I am making purchases about once every 3 months at present.

My current list of stocks on CAPS includes 7 stocks from prior to changing my selection criteria and as of now all 7 are down from the time I entered them in CAPS and only 1 of the 7 is beating the market over that time period,  Meanwhile I have entered 9 stocks since after I changed my selection criteria and 8 of the 9 are up with 6 of the 9 beating the market over the time period.  Am I on too something, who know, way to early, way to few stocks too make any judgement but it sure looks promising.  

So that is my story and I am sticking to it.