investing

My Dare-to-Be-Dull Investing Strategy Pays Off

My stocks are doing so well it’s hard to find a laggard to sell to raise cash for new purchases.

As I mentioned in past columns, when the market took a dive in February and March, I swooped in to buy shares of two of my favorite companies: Boeing (symbol BA, $358) and Costco (COST, $207). Those purchases used up almost all of my cash. I even sold an underperformer to free up more money to pour into Boeing. I’m glad I did.

Since I bought the shares, Costco’s price has risen 13.6%, and Boeing is up roughly 8.6%. That has helped the Practical Investing portfolio beat the market over the first six months of 2018. (Prices and returns are through June 15.)

While the Vanguard Total Stock Market Index ETF (VTI, $144)—the benchmark that I measure my portfolio against—is up 5.5% since the start of the year, my portfolio has jumped 10.6%. But I am still behind the index since I started almost seven years ago. The performance gap is narrowing, though. With the index gaining 145% to my 110%, I’m now a mere 35 percentage points behind. (Yes, that mere was facetious.)

Even though the Boeing and Costco purchases helped, a few tech companies—Apple (AAPL, $189), Intel (INTC, $55) and Seagate (STX, $58)—were the biggest factor in my strong year-to-date performance. All three stocks soared by double digits. Apple was up 12.4% to mid June; Intel jumped 20.8%; and Seagate gained a stunning 43.3%.

In dollars, my portfolio is up by about $40,000 since the end of December, for a total value of $399,869. Apple accounted for $7,514 of the change, Seagate for $12,839, and Intel for $5,106. The fourth-biggest winner was Target, which gained $3,129, or 20.4%, during the first half of 2018.

Low expectations. What gave these stocks flight was a reversal of the market’s low expectations for them. Wall Street was certain that Apple’s earnings would disappoint, that Seagate wouldn’t have the cash to pay its handsome dividend, that Intel would bungle new initiatives and that Target would be crushed by Amazon.

The market frequently leaves good companies for dead (or at least very ill), only to reverse course later when investors are surprised to find them thriving. Thus, my dare-to-be-dull strategy is to sit tight or buy when the market misprices what I think is a good stock. Because that occurs regularly, I like to have some cash ready to deploy into cheap shares. I now need to sell something to have that fresh powder. That’s proving to be tough.

I had intended to get rid of a few odds and ends in the portfolio. I have a small number of shares in three companies: Invitation Homes (INVH, $22), a residential real estate investment trust; Knowles Corp. (KN, $16), which makes electronic components; and Spirit Airlines (SAVE, $40). I acquired Knowles and Invitation via spin-offs. I sold most of my Spirit shares a few years ago, as the airline’s price took off. If I sold all three of these stocks, it would give me about $9,000. But when I examined each stock’s prospects, I hit a snag.

Although Spirit’s earnings are expected to drop slightly this year, the shares sell for just 12 times analysts’ earnings estimates for 2018 and roughly 10 times projected 2019 earnings. Earnings are expected to soar 24% next year. With those numbers, I’d buy more if I had the cash.

Knowles is selling for about 16 times projected year-ahead earnings, but earnings are expected to grow at a 16% rate, which makes the company well priced, in my estimation. Meanwhile, Invitation Homes’ latest financial statements reflect a strong and growing business.

So where will the cash come from? I hope you’ll excuse me for a moment while I formulate a Plan B.

Most Popular

The 25 Cheapest U.S. Cities to Live In
places to live

The 25 Cheapest U.S. Cities to Live In

Take a look at our list of American cities with the lowest costs of living. Is one of the cheapest cities in the U.S. right for you?
October 13, 2021
4 Big Retirement Blunders (and How to Avoid Them)
retirement

4 Big Retirement Blunders (and How to Avoid Them)

It’s too bad, but financial advisers see these four mistakes all the time. Don’t fall into the same traps.
October 6, 2021
The Best Vanguard Funds for 401(k) Retirement Savers
mutual funds

The Best Vanguard Funds for 401(k) Retirement Savers

Vanguard funds account for roughly a third of the 100 most popular 401(k) retirement products. We rank Vanguard's best actively managed funds, includi…
October 8, 2021

Recommended

The Pros and Cons of Target Date Funds with Tony Drake
Financial Planning

The Pros and Cons of Target Date Funds with Tony Drake

The simplicity of target date funds has made them popular, particularly among 401(k) savers. But investors may be paying a price.
October 19, 2021
Robo-Advisers: Weighing the Worth of Automated Advice
investing

Robo-Advisers: Weighing the Worth of Automated Advice

Some people do just fine with bare-bones advice that’s essentially generated by an algorithm. Until your financial life gets more complicated, you mig…
October 17, 2021
Yogi Berra Quotes Investors Can Live By
investing

Yogi Berra Quotes Investors Can Live By

Baseball legend Yogi Berra was wise, in his own muddled way, about more than just sports. His words hold truth in life – and in investing. Here are th…
October 13, 2021
Is Stagflation a Serious Market Risk?
investing

Is Stagflation a Serious Market Risk?

High inflation and corporate warnings of supply chain issues have brought stagflation fretting to a fever pitch.
October 12, 2021