It was a great month. All of you made a lot of money. It was also a great year to date. Many of the indexes are now at all time highs. Remembering back to how this last December looked, with its sharp decline, it would have been easy to panic but you did not. We have only one thing to say. Thank-you.
The topic of this newsletter will be how we (Dollinger Management) choose stocks. Dan has discussed with many of you the idea of allocating some of your portfolio towards dividend and/or value stocks. We think it would be valuable for us to explain how we pick the stocks we invest in. There are two main factors we consider, the quality of the company and the cost of the stock.
In regards to the first point, remember that a share of stock represents partial ownership of the company that issued that stock. If a company has 100 shares of stock and you own 1 of them, then you own 1% of the company. You own 1% of their cash, their debt, their equipment, etc.
While there is the occasional exception, for the most part to find a good stock you first need to find a good company. In order to determine if it’s a good company we look at factors such as whether the company is making money, is it producing a product that people want, has the company been around for a while, does it pay a consistent dividend, etc. Ultimately, we want a company that has made a lot of money for many years. Many companies could have 1 or 2 good years due to factors beyond their control such as a strong overall economy, but no company by luck can have strong consistent profits for 100 years. If a company thrived during the Great Depression, then the company is probably strong. We want at least ten years of consistent profits and great dividends.
The second factor we consider is the cost of the stock. By cost we don’t mean, whether the shares costs 1 dollar a share or 500 dollars a share. We mean, for every dollar we spend how much value do we get. We want a bargain price for what we receive. Remember that a stock represents ownership in the company. If you own 1% of the stock of a company, you own 1% of all that company’s stuff.
There are many ways to measure if the stock price is cheap compared to we are receiving. The price to earnings ratio is the most common metric we use when evaluating the cost of a stock. It is the most common metric because we believe that ultimately it is a company’s earnings that drives a company’s growth and thus is the good proxy for its intrinsic value. We also pay attention to price divided by book value, dividend yield, and the financial statements. We particularly in the financial statements look at debt load, where the cash is being spent, and general safety issues. Dan has personally prepared over 12,000 financial statements over the last 30 years. Reading one is not a problem.
As the market has reached a new high, we will be rebalancing in the near future. Thank-you again for your business and trust.
Dan and Eli
Investment Fee Schedule
|Rate||Assets Under Management|
|1.00%||Between $125,000 and $750,000|
|.85%||Between $750,000 and $1,250,000|
|.80%||Between $1,250,000 and $1,750,000|
|.75%||Between $1,750,000 and $2,500,000|
|.70%||Between $2,500,000 and $3,250,000|
|.65%||Between $3,250,000 and $4,250,000|
A single rate is applied to the whole account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.
As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.
If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.
Questions for the comments
Did my newsletter make sense? Do you agree or disagree with what I said?