BI > MAY 2003

Who Left The Dogs Out?

Investing and Growth -- An Incredible Journey

A reader sent me an e-mail recently and noted that I've written about owls, rattlesnakes, wooden indians, fat cats, tortoises, ground hogs, ducks, analysts majoring in alchemy, cats in hats, dinosaurs and sand castles, bulls, horses and, yes -- bears. Who left the dogs out?

A lifetime of successful strategic long-term investing is nothing short of an incredible journey. In the 1992 Disney movie Homeward Bound, the three stars are Sassy, the cat; Chance, the clumsy and mischievous pup; and Shadow, the sage old Golden Retriever, featuring the voice of Don Ameche.

Shadow sums up the relationship between man and dog with the following observation:

"It's built in. Has been ever since the dawn of time when a few wild dogs took it upon themselves to watch over man; to bark when he's in danger; play with him when he's happy; nuzzle him when he's lonely. That's why they call us man's best friend." -- Shadow the dog.

Howling Over Investing

References to dogs in the investment world are neither favorable nor fair. We hear of these Dogs of the Dow and people speak of the weaker contributors in their portfolio in canine terms. It's a bad rap.

As a small boy, my Labrador and I were inseparable. Blackie was the ultimate in reliability. Blackie was my Shadow. We went fishing together. He made it impossible for me to be victorious in a neighborhood game of hide-and-seek. (That is, when I was hiding -- if I were seeking, Blackie was an unstoppable partner.)

My worst ideas made Blackie's tail wag. Blackie knew how to duck and cover every time I said, "Mom's on to us."

Man's best friend is faithful and ever by our side. All of this begs a question. Who in the world coined the characterization about a non-performing stock being a dog?

Take Your Portfolio To Westminster

Our family recently watched the annual Westminster dog show. It's a delight to watch the diverse collection of dogs as they're put through their paces and carefully judged on some key attributes. They range from dogs as big as small horses to puffballs of flowing fur with tiny legs and eyes that don't seem to blink.

Our stock portfolios should include the same kind of diversity. We need stocks with short legs and some with longer legs. Some of our holdings are sporting, while others hound and some even herd.

A portfolio can be judged by a few select characteristics, too. Since we seek good companies at good prices, our judging criteria can include the following elements of show: quality, expected return, expected sales growth and expected income.

Check the quality ratings of the stocks in the portfolio. What is the average quality rating? Are the "A" ratings plentiful? Does the portfolio have any "C" ratings? Why?

Complete a set of Stock Selection Guides and hold a dog show. When reviewing all your "dogs," what are their projected average returns? What is the average projected return of the entire portfolio? If less than 15 percent, how might you bolster it to 15 percent or higher?

Check to see how frisky Chance is in your portfolio. Do you own some growing bulldog pups that don't know better than to chase a porcupine? What is the average expected sales growth of the portfolio? NAIC co-founder George Nicholson suggested that we seek an average of 12-percent sales growth -- a little more if you're feeling frisky, a little less if you'd rather sleep at night. What are the sales growth expectations for all your holdings? Does the average for the group approach Nicholson's recommendation? Do you need more or less growth?

I'm sometimes amused by all the chaos and buzzword mania that accompanies mutual fund research. Why? Because you can leave the buzzwords, stars and style boxes by the fire hydrant and simply answer the following questions: How much growth? How much income? It's really that simple. What's the average dividend yield of the stocks in the portfolio?

We need a new recognition that we want dogs in our portfolios. We need dogs in our portfolios. "If you pick up a starving dog and make him prosperous, he will not bite you. That is the principal difference between a dog and a man." -- Mark Twain.

Mark Robertson is director of online resources and senior contributing editor for BetterInvesting. He serves as a member of BetterInvesting Magazine's Editorial Advisory & Securities Review Committee. Mark can be reached at Robertson_Mark@comcast.net.