Can you help a first time investor create a quality dividend portfolio strategy?

30th Mar '20 by Gus Bowman

6 comments 734 reads

I am looking to build a diverse portfolio in this bear market with long term stocks. I would like to share the process I am taking, this is my first experience of trading explicitly on the stock market so, any and all feedback would be of very high value.

In an essence I would like my portfolio to be built of high quality dividend paying stocks which were looking to grow well over the next few years , but have seen a fall in price because of Covid-19.

My general approach to building my first portfolio is as follows.

1. Looking for quality, in key sectors. Process explained below.

2. Watching prices closely, waiting for them to reach prices I generally like.

3. Not rushing purchasing, drip buying weekly with a percentage of my savings, because it is hard to judge where the bottom really is.

4. Hopefully, working (after uni) and constantly adding to my portfolio and using it like a savings account, continuously reinvesting.

To find potential stocks I have been creating screens of some key sectors, then sorting these companies in terms of Quality of stock. I hope this will allow me to find companies which are in a healthy position to weather the storm of Covid-19. Furthermore I hope it will help me find good quality companies to own, which can not only ride this out, as they have good balance sheets but will be looking to grow well when normal order resumes, whenever this may be.

A question I have been asking myself is how much emphasis can I place on Stock ranks and in particular the Quality component? (I understand that in these weird times value and momentum ratings are skewed which is altering stock rank which is why I have been looking at Quality rank explicitly)

I have looked at how it is built and I understand where the score comes from. I have also found quality in the industries I know about and I find interesting but am I placing too much emphasis on the quality component to find good companies?

What other components should I ensure I am looking at when analysing a firm?

My final question regards Stockopedia in general.

I have really enjoyed using Stockopedia for the past 2 weeks, however, the price of a subscription is prohibitive…

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Silver Moon

30th Mar '20

Angus, I wouldn't bother with the US markets unless you want to specialise in just those, save yourself some subscription until you gain experience. As always on Stocko, it's a case of DIY, Do Your Own Research and maybe this is the right time to begin to concentrate. Search and make notes, spreadsheet pages of them, recording the vital statistics of promising companies and keep going back to compare past and present. By the time we come to the end of the Chinese Flu tunnel you may well have some idea of what to buy into, perhaps even sooner. Read my post 'Investing for Dividends - Is It A Busted Flush?' and the comments I received to realise the last 3 months have been a nightmare.

jonesj

Start by reading lots of books on investing. Buy them used on ebay.

Watch your trading costs. If starting with a modest sum (as many of us once did), don't break it into too many trades.

Whether you purchase a subscription here should also be influenced by how much you are going to be investing every year in future. 10% of a 1 off lump sum seems too high for my tastes. If you plan to invest an increasing sum every year for the next 20 years, it might just about be worth it for the educational value.

Write down your reasons for every trade.

Gus Bowman

Thank you very much, I am starting with a 212 isa as they offer 0 commission and will be tax free with the sums I am trading with.

I would like to keep it simple whilst I lack experience, I will do this by limiting the number of trades whilst keeping diversified, and stay in industries I understand and like to research. Writing and being able to explain why I've done each trade will help too.

Thanks again.

Thank you, I did read it the other day but failed to link it to my position. The re-read has changed my opinion. I understand that especially in these times putting too much emphasis on dividends may be pointless, especially with the sums I will be investing.

Good luck with everything.

Gromley

Hi Gus,

A few thoughts for you.

1. The StockRanks are in uncharted territory tight now - during the time they have been in existence the market has been pretty much being going constantly up. They are, however, built around Quant concepts that have stood the test of time. However, I personally think the situation is unprecedented, so I'm inclined not to rely to heavily on factors on their own just at the moment.

2. A race to "quality" it this stage may of course be a sensible thing, but just beware that the Stocko ValueRank may not be quite what you think it is - it is an amalgam of enduring quality and some shorter term measures. In particular it is quite heavily weighted towards the Piotroski F-Score, which essentially looks a whether the business is in better shape this year than it was last year. No prizes for guessing which direction that metric is going for most companies.

Rather than conventional quality metrics at this time, my focus is more on looking for surety that the companies I invest in are likely to survive this current crisis. (Personally I don't think the stocko "barkruptcy risk" measure is sufficient, particularly at this time.)

3. I do approve of your long term plan (although from personal experience do beware of that fact that life will throw you some curve balls along the way and you may from time to time withdraw capital when you were planning to build it up).

What better time could there be to start off drip feeding into the market than when the market is c. 30% of it's peak? (Perhaps when the market is 50 or 60% off it's peak!?!)

I am drip feeding into the market at this time also - not because I don't know where the bottom is (I don't, but neither do I think I will know where it is until long after the event) but rather, because as things develop I want to continually test and retest my assumptions on what will survive and prosper.

4. As a bit of a counter to the Dividends - Busted Flush? thread; even with dividends likely cut I do think there is an argument that the dividend history might be an indicator of enduring quality, but again you do need to look at the risk factors.

5. "being able to explain why I've done each trade will help too." YES YES DEFINITELY THIS. Scrupulously record the reasons for your decisions at the time you make them and do review what worked and what didn't, what you missed that might have cost you or even presented an unexpected windfall. In my early days I didn't have the patience to do this and it therefore took much longer to learn some important lessons than it should have.

I think that's it for now - I will drop you an email in case you do want to keep in touch. You can also find me on twitter as @gromley20 - although I don't have much time for twitter just at the moment.

Good Luck.

Tony

AKAGromley

Captain Willard

6th Apr '20

At your age, (bold assumption you are under25), I wouldn't worry about dividends too much unless you need the income..if you do ignore what I'm about to say.

Buy stocks that you ask yourself this question of..in 2 /3 years or 5 years time will they be still be around and doing well.

Disney and Microsoft, are two that I would have a close look at.

regards from the front line......

Can you help a first time investor create a quality dividend portfolio strategy?

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Gus Bowman

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