As a fundamental investor I always try to keep in mind that I'm investing in companies, not pieces of paper. Or, these days, fast-moving blips on a computer screen.
It can be a tough thing to remember when you hear so much about short-covering rallies, movements in the VIX, and options strategies. But they're still companies. So as a little experiment, I added a new tab in the spreadsheet that I use to track my own portfolio. In that tab I pasted in the logos of all of the companies that I own.
The new tab had an interesting and immediate effect. As compared to the main page of my spreadsheet that's populated by tickers, expected returns, dividend yields,current position size, and the like, the new page was starkly simple and immediately made me think about the companies from a broader perspective.
Suddenly, it was less of "What do my calculations tell me based on the numbers?" and more of "Is this a company that I want to own and whose business model I respect?"
And I got to thinking …There are many companies that I own that I'm very happy owning from both a numbers and business perspective. But there are a few that I look at on my logo page and feel lukewarm -- at best -- about owning them.
Philip Morris International (NYSE: PM ) , for instance, is easy to own when I think primarily about the numbers, but less so when I'm staring at the logo and thinking about a business that makes its way by selling dangerous products. While that may seem too touchy-feely and sensitive to some investors, when I mull on that it's tough to be perfectly confident in the long-term outlook for such a business.
At the same time, I felt like there are a lot of companies that I'd love to admire on my logo page (sort of like hunting trophies?) that aren't there.
So what I did was pull up a very broad screen -- looking simply for companies that have a Buffet Ratio (a measure of profitability and efficiency) above 12% -- and painstakingly pulled up the logos for one company after the next. What follows are some of the companies that aren't currently on my logo page, but that I'd like to see there.
A one-two punchJust as a tunnel-vision focus on the numbers isn't ideal, relying simply on your personal views of a business and brand isn't the best way to go either. However, combine the two, and you've got one heck of a plan. That is, focus your stock search on companies with businesses that you understand, admire, and want to own, and then narrow down your buy decisions to the companies where the fundamentals are sound and you can buy the stock at an attractive price.
And what of those that have the admirable business, but don't cut the mustard from a valuation perspective? That's what a watchlist is for. Just because a stock is too expensive today doesn't mean it will be tomorrow. I've held off buying most of the stocks from the list above because of valuation concerns, but some of them -- including Visa (NYSE: V ) ,Cisco (Nasdaq: CSCO ) , and Apple (Nasdaq: AAPL ) -- have recently gotten much more attractive.
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