My Semi Annual Process

It’s the end of June and time for me to dive into my portfolio. Some may find this dull, but this is the work that comes closest to answering the frequently asked question, “So Tom, how do you do it?”. I assume they are asking about investing. (For other topics please be a bit more specific.) Every six months I check myself by looking at what I own and why. This post is about how I do that.

Most of my blog posts are about life, the universe, and everything, or at least the everything that I think ties into personal finance for frugal folk. As one reader put it, my blog is eclectic. Sounds about right. My blog reflects my investing style: lots of thinking about trends, but very little, though very regular, subjective queries and objective analyses. Investing shouldn’t take a lot of time. My book is called Dream. Invest. Live. because Invest is merely the subject that can allow Dream to become Live. Invest shouldn’t take the most time or effort, but responsible investing does require some work.

Late on June 30th or early on July 1st I’ll post my mid-year reviews of the stocks that I own. I’ll probably post all of the links here, rather than the text because I’ve learned a lot by posting my opinions on The Motley Fool, Investor Village, and Silicon Investor. By posting on public sites, discussions can begin that draw in any investor. I’ve done it for years. You can check my earlier posts by searching on tetrimbath and tktrimbath depending on the site.

My primary semi-annual exercise is based on a suggestion from Peter Lynch. Basically, for every stock in an investor’s portfolio, the investor should be able to easily and simply describe the company and why they own the stock. For me that translates into a couple of hundred words. I describe, for myself as much as anyone, what I think the company does, their prospects and hurdles, and what I intend to do about it.

Describing what the company does is like taking an essay test. Without checking web sites or new releases, I describe the company’s business in a few sentences. They make this, or they do that, and they base their business on a distinctive strategy, market or technology. Not a lot of judgment is involved.

Saying Ford makes cars is true and descriptive, but Toyota and resource limitations are important too. I describe competitors, market conditions, industry growth, the economy, and those various influences that alter a company’s plans.

Behind all of the subjective and the descriptive lies data; so, if a company is beyond the startup’s perpetual need for cash, I check on a few key statistics: Market Capitalization, Price/Book, Price/Sales, Price/Earnings (maybe), and I might check the income statement for Revenue and Income and the balance sheet for Assets and Liabilities. Market Cap tells me what segment of the financial community is most likely to notice the company. Price/Book is a quick view on how much money and assets one share of stock represents. (P/B < 1 suggests that you can buy a dollar’s worth of the company for less than a dollar. P/B < 0 means they may have negative net worth. Ouch.) Price/Sales tells me if there is a lot of hype around every dollar that comes in. (P/S < 6 is probably okay for high-tech and such, but P/S > 20 might be a sign that investors are expecting bigger S or have overbought the stock.) I only check Price/Earnings for mature companies, and even then I usually don’t because earnings are easily swung by things that have nothing to do with sales. The income statement and balance sheet are the best view of whether the company is frugal; are they spending less than they make, and are they investing the rest without hanging onto too much debt? Ironically, while I avoid Yahoo’s discussion boards because they are too bizarre sometimes, Yahoo does a very nice job of collecting the pertinent financial data.

With all of that info laid in front me, I ask myself my opinion of the company and the stock. This is the mirror and reflection time. Usually, I get to this point and I’ve convinced myself that I am comfortable with my stock holding and position. But the purpose of the exercise is for those other times when, while looking at what I’ve written, I realize that either my investing strategy, the company, or the stock’s performance have changed enough that I should change my holding. Sometimes it means buying more. Sometimes it means selling. I keep in mind that this is all internal, so maybe I am simply in the midst of rationalization, but even that realization is worth more than simply buying stocks and forgetting about them.

I add a disclaimer and a disclosure when I post to the boards because I know that I am an amateur and human. Mistakes happen. (I particularly like the typo where I said I won a stock instead of own a stock.) This has become an unintentional but useful humility exercise. It pops any ballon that may have formed and reminds me that even investors like Peter Lynch made mistakes. It is quite probable that something in my description and logic is wrong. That’s a reason for caution, but not a reason to stop.

Years ago this exercise seemed somewhat silly. I wasn’t blogging the results and I was partly doing it because I “should”. My reviews have been useful two ways. By posting them I’ve learned about misconceptions, and alternative points of view. Another is watching my personal investing history within a stock. What did I think when I bought it? What do I think about it now? When and why did that change? It is a long term version of talking to myself that is useful because I tend to buy stocks and hold them for years. If the story changed, should I?

Investing isn’t as important as living, but if investing is the bridge between a dream and living it, then investing some time can be very rewarding.

About Tom Trimbath

real estate broker / consultant / entrepreneur / writer / photographer / speaker / aerospace engineer / semi-semi-retired More info at: and at my amazon author page:
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