Enough of the theory (maybe).
It’s time to get practical.
Today, we’ll take things to the next step.
We’ll show you an example of how you can build out at least one of your “10×10 Approach” investing streams.
Remember, this is just for fun. The stocks we mention are for illustrative purposes only.
But it will give you a “real-world” look at one of the methods to create your portfolio.
Let the fun begin! More below. First…
Market Data
The S&P 500 closed up 0.9% to end the day at 5,224.62… the NASDAQ gained 1.3% to close at 16,369.41.
In commodities, West Texas Intermediate crude oil trades at $81.84, down $1.66…
Gold is $2,186 per troy ounce, up $26 from yesterday…
And bitcoin is $65,964, up $2,038 since yesterday.
And now, back to our story…
A Simple Screen
To recap…
We’ve spent the last couple of weeks or so thinking about how to play the market…
Specifically, how to play it if we’re right about this being the late stage of the cycle.
If you want to use a (somewhat cliched) sporting analogy, our view is we could be somewhere around the bottom of the eighth inning… give or take.
With that in mind, if we’re right and stocks could be due to fall as soon as late this year or next year, it makes sense to evaluate your portfolio ahead of time.
Because when markets fall, you don’t want to have everything in large-cap or mega-cap stocks.
They’ve led the market up… and when it turns, you can bet your backside they’ll lead the market down.
So our plan is to take some money out of the market… while still giving you the chance to make a buck or two from this late-stage rally (assuming there is one).
We explained a method for doing that last week. You can check it out here. We broke it down into four steps. They are:
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Cut your losers.
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Trim your winners.
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Move 80% of that capital into something safe or safer (e.g. cash, certificates of deposit, dividend stocks, bonds, etc).
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Move a maximum of 20% into somewhat risky (but diversified) assets.
That last part is what we’re looking at today in the context of our “10×10 Approach.”
(By the way, your editor is “eating his own cooking” on this. We’ve cut several of our growth stock positions by half. And over the next few weeks, we’ll start building out our own 10×10 column of riskier stocks. As we’ve mentioned, you don’t need to rush into it. Take your time.)
The question is, where do you begin?
This is where we started playing around with a few ideas yesterday… just to give you a starting point. So please, take it as that.
What we’re about to show you is just one example out of thousands or even millions of ways you could play it.
The point is, by playing around with a few ideas, you’ll start to figure out what works best for you… and what you feel most comfortable doing.
Now, just to put this in context… Your editor has been in the financial publishing business for 19 years. This year marks our 20th year [Reader’s voice: Congratulations, you old trooper].
What we’ve seen over that time is newsletter subscribers tend to fall into one of three camps. Some will receive the research and follow it religiously (some may say “blindly”). Whatever the editor says, the reader will follow that advice.
The second camp will get the newsletter and they’ll read the advice, analysis, and information, and then they’ll stew on it… they’ll question it, and then they’ll use it as the basis for their own research.
That may lead them to the same conclusion. Or they may think the recommended stock is too conservative, so they’ll find something with better growth potential… or they’ll think the recommendation is too risky but they like the idea, so they’ll find something they consider to be safer.
The third type of subscriber will get the research… and do absolutely nothing with it. We could break those readers down into sub-categories. But that’s beyond what we’re interested in doing today.
For this exercise, we’re mostly talking to the second group of readers. Those who like getting ideas but, for whatever reason, like doing their own research too.
Saying that, if you’ve previously followed our newsletter recommendations religiously, or you don’t do anything with them, then heck, why not give this a go?
What do you have to lose? What’s more, maybe you’ll enjoy doing the extra legwork.
Anyway, on with the show. Where to start?
On the U.S. market, there are thousands of securities. According to the Bloomberg data service, there are more than 10,000 listed securities. That includes all sorts: stocks, bonds, warrants, preferred stock, and so on.
It doesn’t even include options contracts or futures contracts. In other words, there’s a lot to choose from.
So what we did was to whittle that down into something manageable. We’ve used the highly professional (and expensive) Bloomberg Professional terminal for our screen purposes. Again, just to illustrate.
You can see in the screenshot below, how we were able to narrow down the investing universe from more than 1.6 million securities available globally to a long “shortlist” of just 223:
Source: Bloomberg
Naturally, our first criterion was to only include “active” securities. Then we only wanted to look at a company’s primary ticker.
That meant excluding stocks that trade on multiple exchanges. For instance, Alphabet (GOOG) and Meta Platforms (MEA) both have European listings. Those aren’t relevant for us.
Next, we filtered to only include U.S. stocks and companies domiciled in the U.S. Even so, we’ve still only narrowed our selection down to 15,000 securities!
From there, we started getting serious. For this example, we excluded some sectors. We excluded Energy, Financials, Technology, and Biotech.
To be clear, we’re not saying they won’t benefit from the “late innings” cycle. It’s just for this purpose, we excluded them.
We could run a separate screen where we only include those sectors. That would give us an entirely different list, which we could then use to build out a different column for our 10×10 Approach portfolio.
Next, we excluded exchange-traded funds (ETFs) and stocks with a market capitalization greater than $10 billion.
For our final three screens, we wanted companies with a compound annual growth rate (CAGR) greater than 10%, a stock price greater than $5 per share, and an average daily traded value of more than half a million dollars.
Those last two are two just discard true “penny stocks.”
After all that, we’re left with 223 stocks across a number of sectors. Now, arguably, you could say even that’s too many stocks to filter through to narrow it down to 10.
But we don’t think so. In fact, we’d say if you’re going to do this properly, you’ll want a list of at least 100 stocks to make your research meaningful.
So what kind of stocks showed up on our list? Remember, these aren’t recommendations. This is just a sample of the kind of stocks these kinds of screens can turn up.
Here are the top 20 from our search in order of market cap:
Data Source: Bloomberg
Do any of those make for a good investment right now? Who knows? You’ll have to do your own research to find out. There are a handful of familiar names in there.
So maybe one or more of those stocks is a useful starting point for you. As for screening stocks yourself. Websites such as Yahoo! Finance offer limited screening capabilities. But your online brokerage account likely offers something similar. So check it out.
We’ll keep exploring this further… finding ways to help you supplement the recommendations you receive from our research.
Back tomorrow.
More Markets
Today’s top gaining ETFs…
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Amplify Transformational Data Sharing ETF (BLOK) +5.4%
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U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU) +5.2%
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VanEck Gold Miners ETF (GDX) +4.1%
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Invesco Dorsey Wright Technology Momentum ETF (PTF) +3.7%
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iShares MSCI South Africa ETF (EZA) +3.3%
Today’s biggest losing ETFs…
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iShares U.S. Medical Devices ETF (IHI) -0.6%
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First Trust Flexible Municipal High Income ETF (MFLX) -0.5%
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Columbia Multi-Sector Municipal Income ETF (MUST) -0.5%
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iShares MSCI Thailand ETF (THD) -0.4%
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Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) -0.4%
Cheers,
Kris Sayce
Editor, The Daily Cut