+25.47% Annualized Return for High-Yield Stock Portfolio - Week 130 Update 

When investors first start off, they usually invest part of each paycheck (on average, every 2 weeks). So we started this portfolio buying stocks every 2 weeks to replicate someone building a portfolio this way. It became a lot of fun, so we split the $25-every-two-weeks deposit to $12.50 per week. Since most people invest with every paycheck, we ideally want to see which stocks are the best at that time. For example, we are not buying the same exact stocks we bought a month ago, although several are the same. Prices change and what one looked like the best bargain last month might not be as good now.

When they appear to be fairly valued and there are other stocks trading at better valuations. And we'll usually sell if the dividend is cut.

The portfolio has been hovering around 94-95 stocks for quite a while now. New stocks haven't been added to the portfolio for several weeks. If one is building a portfolio to eventually live off the dividends, diversification is key, so no, 94 is not too many. Popular dividend-ETFs often have a lot more. The largest dividend-ETF (ticker VIG) has 341 holdings.

When trying to determine if a stock is over or under-valued, we want to make sure that our methodology is looking at the company’s future and not ONLY the recent past. This is so we can avoid buying a company whose business is about to tank. For example, if a drug company’s main source of profits is a single drug and that drug is going to go off patent, simply looking at the company’s Price-to-Earnings ratio won’t give you a warning sign. So we don’t use a simple formula that looks at past data to determine if a stock is undervalued; we need to look into the future which involves making estimates. And that’s where utilizing the time and effort of “trusted” analysts comes into play. Their full time job is to look at each individual company’s future outlook, something we obviously can’t do since we start with a database of 6,700 companies. And I say “trusted” analysts because many analysts are NOT independent and are simply courting companies with “buy” ratings on their stock in order to earn that company’s investment banking business (one such analyst company notoriously has a “sell” rating on only 0.4% of the stocks that they cover; when everything is a “buy,” then that company’s ratings are worthless). We are always tweaking our methodology, but for valuation, we currently use the target prices of independent analysts (preferably multiple analysts employing multiple philosophies, such value and growth-at-a-reasonable-price) and combine that with the company’s risk profile to determine the company’s margin of safety (ala Warren Buffett and Benjamin Graham). Margin of safety is important because we’d rather invest in a low-risk stock that is 10% undervalued rather than a high-risk stock that is 13% undervalued. And of course, from there we do a deep dive into the company’s accounting practices to look for red flags/accounting irregularities to hopefully avoid frauds like Enron. And we look at dividend sustainability, growth potential, buy-backs, etc.

@@RexJacobsen thank you that was a lot of good information. Where do you get trusted analyst estimates?