An Imaginary Stock Portfolio
With Jesse Smith
Current Equity Prices
Change Tracker
Stock data from Yahoo is not in real time. This is not a buy recommendation.
| Ticker | Imaginary Shares | Current Equity Value | Investment Value | Change |
|---|---|---|---|---|
| BMY | 23 | $573.16 | $510.93 | $62.23 |
| CTL | 10 | $356.2 | $329.00 | $27.20 |
| HRP | 60 | $0 | $342.40 | $-342.40 |
| MPW | 15 | $149.1 | $123.25 | $25.85 |
| MWE | 11 | $383.02 | $259.34 | $123.68 |
| NMM | 18 | $327.06 | $216.70 | $110.36 |
| PAA | 10 | $614.3 | $482.00 | $132.30 |
| POM | 56 | $946.96 | $779.80 | $167.16 |
| RGNC | 16 | $419.2 | $282.00 | $137.20 |
Total portfolio equity value change to date: $443.58
Which is a change of 13.34%
The change tracker does not include dividends. We will post periodic updates that incorporate both changes in equity value and also dividend payouts.
New: See the portfolio's Third Quarter Results!
Coverage Initiated
August 7, 2009
As an entrepreneur, your intention is to make money. Once you have made a small amount of money, you would like to use it to make more money. One time honored way to make (and lose) money is in the stock market. Following the major contraction experienced by the markets during this Lesser Depression, some decent stocks are now trading for prices reasonable enough for consideration by individual investors.
Basementia has decided to create a sample portfolio, and somewhat arbitrarily opted to initiate coverage today. These stocks were chosen yesterday, and an imaginary buy order was put in for the following stocks. This imaginary buy order would have been filled when the markets opened this morning with a total cost as follows:
| Stock Symbol | Number of Shares | Price per Share | Commission | Total Investment |
|---|---|---|---|---|
| BMY | 23 | $21.91 | $7.00 | $510.93 |
| CTL | 10 | $32.20 | $7.00 | $329.00 |
| HRP | 60 | $5.59 | $7.00 | $342.40 |
| MPW | 15 | $7.75 | $7.00 | $123.25 |
| MWE | 11 | $22.94 | $7.00 | $259.34 |
| NMM | 18 | $11.65 | $7.00 | $216.70 |
| PAA | 10 | $47.50 | $7.00 | $482.00 |
| POM | 56 | $13.80 | $7.00 | $779.80 |
| RGNC | 16 | $17.20 | $7.00 | $282.00 |
How convenient that I just happen to have an imaginary $3,325.62 burning a hole in my pocket.
For comparison, we note here that today the S&P 500 opened at 996.60. This will allow us to compare our future results to the broader market.
Basementia™ would like to stress that this is an imaginary portfolio and not a real buy recommendation or endorsement. We are not professional financial counselors. None the above stocks are necessarily the best according to all the criteria listed below. Always do your own due diligence before making any investment.
Investment Rationale
In short, we are tracking these stocks because we think they would make money as long-term investments. We have selected our imaginary portfolio with our own proprietary blend of spreadsheet algorithms and gut instincts. Watch this page to follow our imaginary portfolio's performance over time.
There are no hard and fast "rules" for how to choose a stock. Stock searches or "screens" are available through many of the major information providers such as MSN and Morningstar as well as through the popular online brokerage firms. Using these tools, anyone can search for stocks using different sets of criteria; and as the market fluctuates and companies prosper or fail, the same screen may turn up different results over time.
Growing Revenue
Most buy-and-hold investors agree that the best investment potential is seen in companies that are growing their revenue from one year to the next. In these economic times, there are fewer such companies, as the economy has caused any number of normally solid performers to slip. Therefore this may in fact be the best time to buy: arguably, companies that can do well even when the economy is faring poorly should be quite prosperous once the economy picks back up, even if that doesn't happen until 2011.
Market Capitalization
Some investors prefer small-cap stocks (capitalization = share price times number of shares outstanding) because they believe these smaller companies have a greater long-term potential for exponential growth. Other investors prefer large-cap stocks because these industry behemoths are perceived as steady, stable, and possibly less likely to go bankrupt, although the recent collapse of companies such as GM and Lehman Brothers demonstrates that no company is a completely safe investment, no matter how big they are. For our imaginary portfolio, we have selected a blend that emphasizes smaller companies but includes some larger ones as well.
Dividends
We look for stocks that pay a solid dividend. We prefer a dividend yield (a year's worth of dividend payouts per share, expressed as a percentage of the current share price) that beats both the bond market and the rate of inflation. We look for good coverage of that dividend, preferentially targeting stocks with a dividend payout ratio of about 80%, or lower if possible. (Payout ratio = dividend rate per share divided by earnings per share.) We like companies with growing dividends because this often signals confidence on the part of the Board of Directors that the dividend is sustainable in the long run, and because a Board that has increased dividends already is more likely to do so again in the future. Furthermore, because dividends are popular with investors, these stocks are more likely to maintain or increase their equity value over time.
Current Share Price vs. Earnings
In determining whether a stock is fairly priced, investors often start with the P/E multiple: the most recent stock price divided by the trailing twelve months earnings per share. The lucky number 13 is broadly considered to be a fair valuation for a stock; thus stocks with a higher P/E are overvalued with respect to the company's earnings, while stocks with a lower P/E are trading at a premium. However, an investor may be willing to buy a stock with a higher P/E in order to invest in a lower-risk portfolio, or in companies which the investor believes have a high potential for growth; and in some circumstances a lower P/E may be associated with a higher risk stock. With higher risk come higher potential returns and a greater probability of a loss. As my pa used to say, there are only two certainties in life...
Personally, on days when the stock market takes a big dip, those are the days I consider to be the best days to buy for investors looking to sit on long positions. However, for convenience this imaginary porfolio was initiated all at once, rather than waiting and cherry-picking prices on certain dates.
REIT's
Two of the companies in our imaginary portfolio are Real Estate Investment Trusts: companies that own lots of buildings (shopping malls, office plazas, hospitals, residential apartments, etc.), and lease those buildings out. REIT stocks are generally valued somewhat differently from other corporations, because the depreciation of buildings as reported according to GAAP may differ from those buildings' true long-term value in terms of returns and resale; and in a company whose business is to own lots of buildings, this makes a big difference. So in valuing REIT stocks, analysts typically examine the company's EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization. Using EBITDA divided by shares outstanding in place of the standard EPS to calculate the P/E ratio provides a useful way of comparing different REIT stocks with each other. Comparisons with other industries may be even more convoluted.
Ethical Considerations
For this list we excluded tobacco and weapons manufacturers, but included several oil and gas companies and a major pharmaceutical corporation. You may or may not wish to alter your own imaginary portfolio accordingly.
Disclosure
On the day this imaginary portfolio was selected and posted, one of Basementia's senior managers owned or controlled a very small position in CTL.
Updates
Update 8-17-09
Quote:
"for convenience this imaginary porfolio was initiated all at once, rather than waiting and cherry-picking prices on certain dates. "
However, if we had waited until this morning to put in our imaginary buy order, we'd have saved ourselves some imaginary money for sure. Hard to have predicted ten days ago that today would be the day sepecifically, but perhaps for our next imaginary investment we will sit on that imaginary money until the market has a "down" day, and submit our imaginary buy order at that time.
Update 8-25-09
Thought I would add an original custom module to this page that would interact with the quotes from Yahoo! to display the realtime gain or loss to the equity value of the imaginary portfolio. Thought that coding such a module would only take me a few hours. To make things easier, I even have a browser plug-in that allowed me to read the iframe's dynamically generated source.
A late night and a real early morning later, I had to admit that this operation can't be performed with JavaScript. As it turns out, a parent page cannot access the contents of an iframe via the DOM if the iframe source attribute points to a different domain. Browsers like Firefox prevent it for security reasons. Of course I wrote the whole widget before I could test it to find this fatal flaw in my plan. The good people over at w3schools are my personal champions; but their write-up for the iframeObject.contentDocument method simply notes which browsers support it and states "The returned object can be processed with all standard DOM methods" without mentioning the fairly important limitation that it only works if your script is running on the same domain that serves the iframe. It's probably in the W3C specs, I'm sure it was my own propensity for shortcuts that led me to this juncture by only reading a summary of the specs instead of the specs themselves; but who has the time? Anyhow, I did first learn that due to browser incompatibilities, anyone who wants to access an iframe that they ARE serving from the same domain has to first test which method the visitor's particular browser supports, like so:
var iframe = document.getElementById('iframeID');
var iframeContent = new iframeObject(iframe);
if(iframeContent){
//the purpose of your script, whatever that may be.
alert(iframeContent);
}
function iframeObject(iframe){
if(iframe.document){//internet explorer
return iframe.document;
}else{
if(iframe.contentDocument){//other browsers
return iframe.contentDocument;
}else{//not supported at all
return false;
}
}
}
All of which may well come in useful someday, if I ever need to navigate the DOM of an iframe that I'm serving from the same domain that hosts the parent page. Probably not by next week though. Still, it was a night of learning experiences, although what I learned had nothing to do with the stock market specifically.
Update 9-1-09
Working on a new widget that uses quotes from Yahoo to figure the portfolio's current returns. After my time-consuming attempt at doing this via an original JavaScript fell through (see above) I found a convenient PHP class that queries Yahoo and parses the returned .csv file for the most recent available stock price. Thanks to Mr. Guido Rossi for his time-saving script!
Update 9-4-09
Similar to my sentiments in an earlier update, I see that yesterday would have been a better day to "buy" this imaginary portfolio; the equity value was down fully 2% from the purchase price. Oh well, as my wife reminds me, it's what it's worth in three to five years that counts; so it will take a while to see if the portfolio was chosen well.
11-9-09: First Quarter Results
We are pleased to announce the results for the first quarter since the implementation of our Imaginary Portfolio (see below). Including dividends and fees, the total portfolio value has increased by $382.03 in 3 months, a gain of 11.49%. We could choose to sell this entire portfolio right now; we could put in an imaginary sell order for first thing tomorrow morning and lock in our gain. After sales transaction fees we would walk away from the Imaginary Portfolio with a gain of about 9.6%: not too shabby for three months and a first effort.
But since this portfolio is imaginary, we have little incentive to sell now. Let's do an experiment: we will wait and see if another quarter or two will improve the portfolio's performance, or demolish it. I know that with so much anticipation, you can barely contain your excitement; so keep watching this space!
| Ticker | Imaginary Shares | Current Equity Value | Dividend Rate per Share | Total Dividend Payout | Payout Date | Total Value | Initial Investment | Total Change |
| BMY | 23 | $530.15 | $0.31 | $7.13 | 11/02/09 | $537.28 | $510.93 | $26.35 |
| CTL | 10 | $349.90 | $0.70 | $7.00 | 09/21/09 | $356.90 | $329.00 | $27.90 |
| HRP | 60 | $430.20 | $0.12 | $7.20 | 11/20/09 | $437.40 | $342.40 | $95.00 |
| MPW | 15 | $132.45 | $0.20 | $3.00 | 10/15/09 | $135.45 | $123.25 | $12.20 |
| MWE | 11 | $283.03 | $0.64 | $7.04 | 11/13/09 | $290.07 | $259.34 | $30.73 |
| NMM | 18 | $250.56 | $0.41 | $7.29 | 11/12/09 | $257.85 | $216.70 | $41.15 |
| PAA | 10 | $496.10 | $0.92 | $9.20 | 11/13/09 | $505.30 | $482.00 | $23.30 |
| POM | 56 | $874.16 | $0.00 | $0.00 | none this quarter | $874.16 | $779.80 | $94.36 |
| RGNC | 16 | $305.92 | $0.45 | $7.12 | 11/13/09 | $313.04 | $282.00 | $31.04 |
| Total all | 219 | $3,652.47 | $3.74 | $54.98 | $3,707.45 | $3,325.42 | $382.03 |
This is still not a buy recommendation!
2-8-2010: Second Quarter Results
Our buy and hold strategy for this imaginary portfolio seemed to be going swimmingly until last Thursday, when the equities lost a significant portion of their value all in one day. Today was not pretty, either. If we were more actively involved in the management of this portfolio, we might have set imaginary stop-loss orders and exited several of these positions as the value decreased. But since we're taking a more hands-off approach, we'll go ahead and continue to hold our imaginary positions for the time being, in hopes the stock prices will bubble back up in the next couple of quarters.
Just as a means of gauging our progress, in six months this imaginary portolio's nominal value has increased $533.10 to $3,325.42, a net gain of 16%. Of course, if we were to sell it, we would give back a small portion of those gains in imaginary transaction fees, but that's just how the game is played. By means of comparison, over the course of those same 6 months, the S&P 500 index has increased from 996.60 to 1,056.74, a gain of just about 6%. If this had been an investment of real money, it would have significantly outperformed an index fund. That's decent, but we're not exactly crowing. We're thinking we played it a bit on the safe side on this one. Maybe for our next imaginary portfolio we'll try out some stocks that are a bit less stodgy than these here. All the same, this showing isn't too bad. It certainly could have been worse.
Stay tuned to see how the imaginary portfolio fares in its next quarter! Sayonara for now.
| Ticker | Imaginary Shares | Current Equity Value | Dividend Rate per Share | Current Quarter Payout | Payout Date | Previous Dividends | Total Value | Initial Investment | Change |
| BMY | 23 | $551.08 | $0.32 | $7.36 | 2/1/2010 | $7.13 | $565.57 | $510.93 | $54.64 |
| CTL | 10 | $343.50 | $0.70 | $7.00 | 12/15/2009 | $7.00 | $357.50 | $329.00 | $28.50 |
| HRP | 60 | $388.80 | $0.12 | $7.20 | 12/17/2009 | $7.20 | $403.20 | $342.40 | $60.80 |
| MPW | 15 | $141.15 | $0.20 | $3.00 | 12/15/2009 | $3.00 | $147.15 | $123.25 | $23.90 |
| MWE | 11 | $302.17 | $0.64 | $7.04 | 2/12/2010 | $7.04 | $316.25 | $259.34 | $56.91 |
| NMM | 18 | $270.36 | $0.41 | $7.38 | 2/11/2010 | $7.29 | $285.03 | $216.70 | $68.33 |
| PAA | 10 | $518.60 | $0.93 | $9.30 | 2/12/2010 | $9.20 | $537.10 | $482.00 | $55.10 |
| POM | 56 | $890.96 | $0.27 | $15.12 | 12/31/2009 | $0.00 | $906.08 | $779.80 | $126.28 |
| RGNC | 16 | $326.40 | $0.445 | $7.12 | 2/12/2010 | $7.12 | $340.64 | $282.00 | $58.64 |
| Totals | 219 | $3733.02 | $70.52 | $54.98 | $3,858.52 | $3,325.42 | $533.10 |
3-12-2010: Commentary
I couldn't help noticing that at market close today the value of the equities in the imaginary portfolio had increased 23.31% over their purchase price. This is a pretty worthwhile gain and does not include dividends. The portfolio is now looking much better than it was just a month ago; in fact I might venture to say it's nearly back to where it was before the disastrous drop that occurred just before last quarter's results. If I were particularly cautious, or following a different investment strategy, I might put in an imaginary sell order and lock in these gains above 20% and call myself fortunate, especially given that a couple of the companies in the imaginary portfolio have recently been downgraded by ratings agencies. But again, since this portfolio is just imaginary, there's really no point to getting out early. I certainly don't have time to start imaginary day trading! Next quarterly results are due on May 8... I will report back then.
5-7-2010: Third Quarter Results
If there is any lesson to be learned from this ongoing imaginary portfolio stock watch project, it should be this: sell while you're up. Set aside a portion of your profits someplace safe, and reinvest the other portion along with your original capital. This will limit your losses in the event of a massive sudden drop in stock prices, as happened yesterday.
This imaginary portfolio was doing quite well, until yesterday's dizzying drop in equities markets. Then suddenly the Dow Jones Industrial Average was down almost 1,000 points after a mind-boggling loss of more than 700 points in about 10 minutes. Prices bobbed back up shortly thereafter, but settled at a level much lower than where they had been at the opening bell. This dramatic event appears to have wiped out much of the Imaginary Portfolio's gains for the calendar year to date. We've only gained about $160 for the entire quarter. If this imaginary portfolio had followed the above advice, then some of those earlier gains would be safe. As it is:
| Ticker | Imaginary Shares | Current Equity Value | Dividend Rate per Share | Current Quarter Payout | Ex-Div Date | Previous Dividends | Total Value | Initial Investment | Change |
| BMY | 23 | $559.82 | $0.32 | $7.36 | 3/30/2010 | $14.49 | $581.67 | $510.93 | $70.74 |
| CTL | 10 | $330.30 | $0.725 | $7.25 | 3/5/2010 | $14.00 | $351.55 | $329.00 | $22.55 |
| HRP | 60 | $426.60 | $0.12 | $7.20 | 4/21/2010 | $14.40 | $448.20 | $342.40 | $105.80 |
| MPW | 15 | $136.65 | $0.20 | $3.00 | 3/16/2010 | $6.00 | $145.65 | $123.25 | $22.40 |
| MWE | 11 | $314.60 | $0.64 | $7.04 | 4/29/2010 | $14.08 | $335.72 | $259.34 | $76.38 |
| NMM | 18 | $275.58 | $0.415 | $7.47 | 5/6/2010 | $14.67 | $297.72 | $216.70 | $81.02 |
| PAA | 10 | $533.50 | $0.935 | $9.35 | 4/30/2010 | $18.50 | $561.35 | $482.00 | $79.35 |
| POM | 56 | $912.24 | $0.27 | $15.12 | 3/8/2010 | $15.12 | $942.48 | $779.80 | $162.68 |
| RGNC | 16 | $330.40 | $0.445 | $7.12 | 5/5/2010 | $14.24 | $351.76 | $282.00 | $69.76 |
| Totals | 219 | $3,819.69 | $70.91 | $125.50 | $4,016.10 | $3,325.42 | $690.68 |
The Imaginary Portfolio is still in the black; it's just not as far up as it had been say a week ago. As of the quarter's end, this portfolio is up $690.68, or 20.77%. By way of comparison, the S&P 500 index has risen to 1110.88 as of the same date, a gain of 10.29%. If this were a real investment, we'd be beating an index fund by about double the gains. If we were more actively managing this portfolio, we could possibly be doing even better.
It will be interesting to see how these stocks perform moving forward. We note that NMM has posted a loss for the most recent quarter, and its stock is down as a result; however the company has recently increased distributions (by $0.005 a share) which generally signals confidence on the part of the Board of Directors. We note that CTL has increased its dividend two and a half cents per share, and posted big gains (largely due to its acquisition of Embarq); but the stock itself has suffered somewhat from the company's proposed merger with rival Qwest Communications, which is ironic because the merger with Qwest will cement CTL's position as one of the largest land line service providers in the United States. It's true that absorbing Qwest's debt will be painful for CTL (which hopes to officially change its name to CenturyLink) but in our view the synergies and expanded customer base can only be a net positive in the extremely competitive world of data network service providers. Another company that raised its dividend is PAA, which has always boasted a strong balance sheet and is well positioned to ride the recovery to new highs, whenever the recovery actually gets here.
Incidentally, speaking of that incredible, precipitous, record-breaking drop in stock prices on Thursday the 6th, consider for a moment if you will the stop-loss order. We're all familiar with the concept: if you are invested in a position and you're unwilling to take more than a certain amount of loss on it, you put in a "stop" order with your brokerage. A stop order is just a sell order that will be activated automatically if your equity's value moves below a specific price point. However, you are not guaranteed that you will receive a specific price. You are only guaranteed that your equities will be sold. The price you will actually get for your shares is the market price at the time of the sale. If a lot of other people have put in stop orders on the same stock, and all those sell orders are triggered simultaneously, the share price could plummet rapidly as a result. Your sell order would be executed but the price at the time of execution could be a lot less than the price at which you set your "stop" order. You could end up selling your stock for a lot less than you wanted for it; and boy would you be mad. You'd be especially mad if you were one of the people who this must have happened to yesterday: your stop order kicked in, you sold all your shares at rock-bottom prices (some otherwise perfectly good stocks sold for mere fractions of a penny per share - it would have been a great time to buy!) and then within minutes, the panic subsided and the stock prices returned, not to where they had been, but at least to a more reasonable level. Now if you wanted to buy your shares back again, you'd probably end up paying more than you sold them for five minutes ago. So much for hedging your bets and protecting your investments.
Let's see now, safe investments, safe investments, what do we have... Land? Nope, that bubble sure burst with a bang. Stocks? Ai yi yi. Government debt (aka "bonds")? That used to be considered safe, but with Greece teetering and others ready to follow, maybe not so much anymore. What about gold? Sure, now's a great time to buy gold, if you like to buy high just before the bubble bursts. Besides, when you buy gold, you don't even get to receive the actual gold. You just get a piece of paper saying that some gold somewhere belongs to you. Seriously, if you can't hammer it into a pharaoh mask, what good is it? All right so what else is worthy of investment? Consumer electronics? They break. A car? Instant depreciation. Term life insurance? If it were a good deal, the insurance companies would not be selling it. Nope, sorry, I got nothing. Turns out "safe investment" is an oxymoron. You want to keep your money safe? Well you can't. Forget it.
For cheerful, hopeful, optimistic advice on how you can turn past-due bills into big-bucks riches overnight... watch TV. But if you want gritty, realistic analysis with a little bit of humor, keep watching this space! We will make some adjustments to the imaginary portfolio at the one year anniversary of its inception. By then we will have a couple hundred dollars worth of imaginary dividends to invest. Now accepting suggestions for next year's high-yield stocks!
UPDATE: The NASDAQ stock exchange has announced that it will retroactively cancel many of the trades that were made during that ten-minute interval on May 6 when the bottom fell out of the market. Don't count on this happening twice; next time the bottom drops out of the market, you could very well be left holding the bag. Try to sell high, before the slide. Good luck!
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