My Half Year Stock Buy Performance Analysis

Price Performance on Stock Buys from January - June 2017 (click image to zoom)
In this post, I will share with you the performance of my recent stock picks using a simple back-testing method.

You can use short-term back-testing to fine-tune your stock picking ability to maximize long-term profits and margin of safety.


I keep a detailed spreadsheet to record all my investment decisions as well as writing down by hand in a notebook. There is something special about writing by hand as it slows me down and makes me think about my decisions at a deeper level than if I were to just use spreadsheet.

The short-term back-testing process helps me determine whether I bought the stocks at the right price or not. Did I buy it too soon or too late? Was my investment thesis correct or at least on track? Did I let emotions take over sound judgement, or did I buy in a hurry or got lazy and skipped my usual analysis?

I use the results of back-testing to tighten up any lose ends in my decision making process while patting myself on the back for making good decisions. This type of exercise prevents me from becoming complacent or lazy with my investment decisions while helping me become an Intelligent Investor. I also find it to be very rewarding and motivating when I see positive results of my effort.

So let's look back at the year and see how I did with regards to all my stock purchases during the first half of this year, that is from January - June 2017.

During the first half of 2017, I made total of 48 buy transactions which includes several multiple buys on the same stock to dollar-cost-average a position.

Out of these 48 buy transactions, 35 are currently profitable, these are shown as positive bars in the above chart. While 13 buy transactions are currently showing a price loss.

Overall, that's a 73% positive buy rate with many of them showing double digit percentage growth in stock price. For a short-term performance, this is looking pretty good so far.

The Good

On the good side, the most prominent or profitable of my buy decisions were the stock of VF. Corporation (ticker: VFC) which I eased into nicely as the stock was getting hammered due to Amazon affect on the retail sector.

I started buying VFC in January, right after I wrote about my VFC analysis: I am adding V.F. Corporation to my Dividend Portfolio

Since then, the VFC position has gone up by 23% while earning me a respectable dividend (yield-on-cost) of 3.26%. It's not that often one gets to buy a dividend aristocrat this cheap.

My other big winners are Abbvie (ticker ABBV), Nordstorm (ticker: JWN), Kohl (ticker: KSS), and W.P. Carey (WPC) among several others.

I picked up JWN and KSS during the retail sector's Armageddon when most investors were dumping these stocks left and right. Both JWN and KSS positions are up double digits while earning generous dividends. You can read about my retail sector analysis here: Which department store stock should I buy?

My other big winner is Abbvie, a biotech/pharma company. My thesis for buying Abbive was high earnings and sales growth biotech company with fast growing dividend, at an excellent yield of 4%. Among all the other biotech companies, I found Abbvie to be the most mature and least risky. I wrote in detail about Abbvie here: Bought More Abbvie (ABBV) On A Dip Today

The Bad

Less than quarter of my buy decisions are currently at loss with majority of the losses under 5%. That's not too bad and even if I didn't get the price at the bottom, at least I got pretty close to buying these stocks at the bottom or at fair price. Some of these were also more recent buys, so hopefully in time they will move up as there is nothing fundamentally wrong with any of these stocks.

However, I do have one buy transaction that is currently at a loss of 18% and I will talk about it in some detail as I have a good reason for why it happened and why I didn't see the looming price decline.

Qualcomm (ticker QCOM) was one of the first stocks I bought this year in mid January. As usual, I did my buy analysis before buying the stock, and everything looked good. It's a high flyer technology company which is dominant in mobile space while having great growth prospects in emerging areas such as IOT and 5G. It was also just after QCOM announced acquisition of NXP which would have given QCOM a leading position in autonomous vehicle and IOT areas.

Also fundamentals checked out well with huge pile of cash on the books and ever growing licensing business. So overall fundamentals looked great and therefore, I started a position.

However, just a few weeks after I started my position, the FTC filed its anti-trust case against QCOM and then came the Apple litigation.

I couldn't have seen the FTC and Apple litigation issues that propped up just weeks and months after I started my initial position.

As the stock started its nose dive, I started to dollar-cost-average into lower cost basis.This also helped increase my yield-on-cost to around 4% while increasing margin on safety on my initial buy transaction. I'm currently at full position on QCOM and not buying any more shares.

I think long-term Qualcomm will do very well as they are well positioned in the future growth areas of 5G, IOT, and Autonomous vehicles. The litigation issues will resolve likely in some sort of settlements. Such litigation are nothing new in the high-tech licensing business and QCOM management knows how to deal with them. I seem these pains as only short-term and see a bright future for the company and my stock purchases.

Key Takeaways
  • The buy process is mostly doing its job and seems to be working in determining good entry points based on fundamental analysis and my fair value calculations.
  • Unforeseen issues or surprises such as QCOM's legal issues were hard to detect before hand. Therefore, when buying a company, especially a technology company with a licensing business, it may be prudent to have additional margin of safety built into the fair price calculation. Had I known that, I would have discounted the fair price by an additional 10-15%, if not more.
  • 73% of my buy decisions have resulted in profitable positions with several double digit gains. That's pretty decent, though I can do better by further tightening the buy rules. I would like the positive buy rate to be over 80%.
Conclusion

As an investor it is important to track and back-test your buy and sell decisions. Back-testing of short-term decisions can help identify mistakes made in buying or selling a stock at the wrong price or wrong time or worse purely based on emotions or a knee jerk reaction. 

More over, having a good record of all investment decisions can help you become a better investor as you learn both from your mistakes as well as success. Happy investing!

Disclaimer: Author of this article is not a licensed/registered financial or investment adviser and does not provide investment advice. Any mention of stock names/tickers in this article or website is not a recommendation to buy or sell. This article is for informational and entertainment purposes only. Full disclaimer can be read here: Full Disclaimer

Comments

  1. It has been a great year so far looks like. Lots of good names you listed. I have noticed VFC doing very well even though I don't own any. I really like ABBV and want to start a position, but the price is so high right now. Not sure if it will come down any time soon. I agree, QCOM is a long term play. Price has come down significantly recently but I think it will go up over time. Their dividends are nice to collect in the meanwhile, while it is down so low.

    ReplyDelete
    Replies
    1. Hi DD,

      Per my valuation method, at current P/E of 13.6 ABBV is still undervalued by nearly 20% with fair value at $89. Note that I take into account M* FV estimate, FastGraph forecasting tool, and CFRA fair value estimate.

      Thanks for stopping by.

      Delete
  2. While I totally agree that it's important to track your gains and losses to see how your recent picks fared, I think it might not be as important to long term dividend growth investors. If you are going the DGI route then by definition you are planning to hold stocks for a long, long time. No doubt during a five, ten or twenty year holding period any stock can under perform or outperform in the meantime. As long as those dividends continue to roll in and grow a DGI should be happy.

    ReplyDelete
    Replies
    1. Hi DH,

      It is a short-term feedback process to improve my buying decisions while getting me the best price possible along the bottom curve of a given stock price. It also gives me a visual queue on when to buy the next lot based on a previously purchased lot, and hence enforces buy low mentality.

      As for the long-term, I do care about total returns and therefore, getting a best possible price would give me a higher margin of safety as well as a higher starting dividend.

      As you probably know, both margin of safety and higher starting dividend are important, even to a long-term dividend growth investor.

      Thanks for stopping by.

      Delete
    2. Great explanations! I think everyone is trying to time the market right for the past 3 years, but to no vail. It's easier to buy cyclical stocks like Gas, and currently pharmaceutical and retails. Otherwise, no one can ever buy anything and the market keep on marching up.

      As more millenials entering the workforce, buy! buy! buy! is the mantra currently, even the fundamentals are weak.

      Delete
  3. Just my two cents, but you should not only back-test for the individual companies, but compare with a benchmark, like an S&P 500 or Wilshire 5000 index. Because that's how you'll know how you've done compared to market as a whole (US market YTD return is roughly 11% YTD) and also need to factor in transaction costs (if any) and factor in the losers along with the winners from a total dollar standpoint. I'll continue to follow your progress, thanks for sharing!

    ReplyDelete
    Replies
    1. Hi Tim,

      Well S&P 500 is not the correct benchmark for my portfolio. Since I'm a dividend growth investor, VIG is a more appropriate benchmark. Besides S&P 500 is so artificially inflated (thanks to FANG stocks) that I would not be trying to beat it, even if I care to.

      I've my own goal for my portfolio's total return and it is 10% yoy regardless of what the market does. Out of this 10% return, at least half or 5% comes from pure dividends.

      Therefore, at the current portfolio yield of 5.07%, I only need about 6% market return to beat S&P 500 or 8% if I take into account for 2% S&P500 yield. For VIG it's even better since its YTD return is slightly lower than S&P.

      Regardless, I've had no trouble beating the market given that big part of my total return comes from highly dependable and growing dividends. That's the beauty of dividend growth investing.

      As for back testing, it's akin to practicing throwing darts and checking how close I came to hitting a bullseye. It's not how I calculate total return.

      Thanks for following and your feedback.

      Delete

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