I started the UKVI model portfolio back in March 2011 to show that the UKVI stock screen and investment strategy work, and also as a way of teaching investors how to use them to pick stocks in the real world. Since then the portfolio has grown from zero to 26 holdings, with a total of 32 buy decisions, 6 sell decisions and 89 dividend payments.
The portfolio began with £50,000 of virtual money and tracks every buy and sell decision, including any associated stamp duty and trading commissions. Each trading decision is announced before a trade is made, and the process behind that decision is fully documented.
Because I think this is a sensible way to invest, I have the vast majority of my own pension funds invested in all the stocks in the model portfolio. So although this is a model portfolio I take it as seriously as I would my own money, because it effectively is.
Basic goals of the portfolio
These are relatively simple:
- High Yield – The portfolio should always have a yield higher than the FTSE All-Share.
- High Dividend Growth – The portfolio should grow its total dividend faster than the FTSE All-Share, whether dividends are withdrawn or not.
- High Capital Growth – The portfolio should grow its capital value faster than the FTSE All-Share, whether dividends are withdrawn or not.
- Low Risk – The dividend income stream and capital value of the portfolio should be not be significantly more volatile than those of the FTSE All-Share, and each company in the portfolio should be a relatively “low risk” business.
- Low Effort – The portfolio should be easy to manage, taking no more than a few hours each month to make any trading decisions.
- Fully Transparent – Everything about the portfolio should be open and transparent, from the stock screen to the investment checklist and more.
A defensive value investing strategy
The portfolio follows a defensive value investing strategy, which means that it follows the guidelines for defensive investors laid down by Ben Graham, who was Warren Buffett’s mentor.
Graham said that the defensive investor should focus on companies that are large, prominent and conservatively financed, with a long record of dividend payments. He also said these companies should be bought when the share price was reasonable in relation to the company’s average earnings over previous years. Finally, he said that shares of…
