Total numpty as we say in the UK.
Dell was a company that I first mentioned via Facebook and then subsequently in this article, when I stated that Dell was a very cheap large cap tech stock.
One of those strategies – the relatively unpopular large company – has been build into a screener to help me scan for stocks that meet Graham’s criteria which are:
- The company must be large – a market cap of over $10 billion
- The company must be showing a decline in it’s share price
- The company must be going through a period of unpopularity
- The current PE ratio must be at the lower end of it’s past average
- The current PE ratio must be below 20
I actually screen for stocks that have a PE ratio of 12 or less to ensure that any companies that show up from the screener are just that little bit cheaper.
This is all very fine and well.
But the numpty that I am made me include one further variable which does not even form part of Graham’s original criteria. I added:
- The company must be paying a dividend.
As a result of this work of genius on my part, Dell did not show up on my scan on the first trading day of 2013 because it does not pay a dividend and as a result Dell was excluded from the US large cap portfolio.
THIS HAS CAUSED ME TO MISS OUT ON A 25% RETURN IN LESS THAN 6 WEEKS DUE TO MICHAEL DELL OFFERING SHAREHOLDERS $13.65 PER SHARE TO BUY BACK THE COMPANY HE FOUNDED. ON THE FIRST TRADING DAY OF 2013, DELL SHARES WERE TRADING AT $11.00 A SHARE = JUST SHY OF 25%.
The moral of today’s post is: when using screeners, be very careful of the inputs that you use as they will have an effect on investing results.
In my defence, I was trying to make sure that the large caps in my portfolio, unloved by the market, were paying me to hold them via their dividends and the only way to do this was to ensure that they all paid a dividend = GREED.
My second defence was that I am experimenting with portfolios that require little, if any security analysis and instead use a screener. Needless to say that I will stick to Benjamin Graham’s original criteria from now on and be mindful of the fact that even though The Intelligent Investor was first published in 1949, it’s wisdom is timeless.
What investing mistakes have you made and how did you make up for them?
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