The Start of the Process

Hello everyone! Sorry about the lack of updates. I've been busy with swimming lately, namely training for the 2015 Arizona Senior Short Course State Championships that took place this weekend. Now that I've passed all of that, I can now refocus on my SRP!

This last couple of weeks I've started the main (and probably the most time-consuming) portion of my project: the creation of my portfolio! Well, I haven't actually created it yet, but I've started the research into finding the components to be included in it. So, the majority of my time has been dedicated to searching through all the possible stocks in the market to find ones that will help me achieve the goal of my project---to try and achieve maximum returns on my portfolio.

But with the thousands of different companies in the market with public stocks available, how am I going to be able to choose which ones to include in my portfolio? This is where the investing methodology comes in. For my portfolio, I've decided to follow the Benjamin Graham school of investing, also followed by notable figures such as Warren Buffett and Charles Brandes. Basing my selection of companies stocks on this ideology of "value investing", I've been using an online stock screener to sift through the various stocks in the market to find ones that fit the criteria of "value investing".

So what exactly am I looking for in a company? Well, there are a large number of different guidelines and factors to consider that I have at my disposal:

The Graham Net-Net Method

1) A stock's price should be less than two-thirds of its company's "net-net" current assets (all of a company's liabilites minus its assets on hand).

2) The company is currently profitable.

Graham's Second Method

1) A company's earnings yield should be at least double the average AAA bond yield.

2) A company's dividend yield should be no less than two-thirds of the long-term AAA bond yield.

3) A company's debt-to-equity ratio should be less than 1.0.

Five Tests for Value

1) Earnings yield is at least twice the yield on long-term AAA bonds.

2) The P/E ratio falls among the lowest 10 percent of P/Es in the universe.

3) Dividend yield is at least two-thirds the yield on long-term AAA bonds.

4) Stock price is less than two-thirds of tangible book value per share.

5) Stock price is less than two-thirds of net current assets.

...and aside from these three methods, there are many more different guidelines and indicators that help to find "value" companies. Do they work 100% of the time? No, that's why there are so many different opinions. And it should also be noted that for many of these criteria, there is wiggle room. It's almost impossible to find the perfect company that fits all criteria, so it's the job of the investor to do his research and make informed choices.

As I'm getting closer to completing my portfolio, I'll be sure to write about each company I've decided to include. Until then, make sure to check back often!