Lazy Man and Money

Let’s Go Bargain Stock Hunting

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I have a watchlist of 24 stocks and mutual funds. They are all companies that I either own, have thought about owning at some point, or an MLM company that I keep track of (for when the FTC inevitably acts on Herbalife).

Just recently, I’ve noticed a few of the stocks have “gone on sale.” That is to say that they’ve gone pretty low in pricing. However, they are big companies and brands that you know… at P/E ratios that a bargain hunter can love. This isn’t a deep dive… I’m using no stock screener. It’s just an observation. I’m thinking about investing in them (except for the one I already own) for the long term and I want to share that.

The three on my watch list that stand out are:

Wal-Mart

You might have noticed that Wal-Mart dropped 10% yesterday. When one of your 24 stocks has a double digit move, it is hard not to notice it. I was extremely busy, but I did some quick research. It’s not enough to make a stock buying decision on, but this is my take from what I’ve read.

Wal-Mart is expecting lower profits for perhaps the next couple of years. It’s heavily investing in infrastructure to help speed future growth. It is expanding its stock buy-back program to $20 billion and it pays a decent dividend. It’s easy to see the bad news and I don’t want to overlook that. However, a historically rock-solid company is trading at a P/E of around 12.5 and seems to be doing the right things for the long-term.

If you are a buy-and-hold investor, I think you could do a lot worse than picking up Wal-Mart at 30% off year to date.

IBM

This is a stock I’ve held for probably more than a year now. It’s another company with some bad news. They’ve had declining revenue for what seems to be 6 trillion straight quarters. The huge company had a lot of momentum into technology that isn’t very profitable. They’ve been steadily moving away from those from those business and towards more profitable businesses, but it is a slow process.

I do like what IBM has done while they restructure. They’ve been buying back tons of shares. That has steadily grown their earnings per share and lowered their P/E to under 10. It pays a healthy dividend. There’s some huge growth potential with their Watson technology.

I read that IBM is Warren Buffett’s biggest holding. Overall, it feels like when I had Apple at $70 and it jumped up to more than $125.

Ebay

For years I’ve watched this stock trade in the 50s. The other day I saw it around $23. I was apparently away from my computer the day that Paypal spun off and took that value out of Ebay.

Ebay has a $30 billion market-cap, which is much smaller than the previous two Goliaths. I view that as having more room to grow. It has a monopoly in the online auction business. Truth be told, I simply use Buy It Now, so it is more like a store to me, but the lack of competition is notable.

Finally, it too has a P/E under 10, so there’s value there. It’s also on a 15% off sale after the Paypal divestiture. Unfortunately, it doesn’t pay a dividend.

Consider a pick for a little variety compared to the previous two.

Summing It Up

If you are interested in holding stocks for the long haul, I think you could do lot worse than these three stocks. There’s a saying that you make money on the buy and not the sell. I believe that’s the case here. It feels like the right time to buy.

That said, I also thought it was the right time to buy SodaStream at various points as the company has crashed from $50 to $15. Something would have to go terribly wrong, like losing 2/3rd of their earnings, for any of these companies to do something like that. I don’t see it happening.

If you are going to buying stocks, you are going to need a brokerage. It’s been a long time since I looked at the best ones, but I do like the idea of Motif Investing. You can create a basket of all these stocks in just one trade. They’ll even give you up to $150 to get started.

A Lazy Portfolio (Bought on the Cheap)

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Yesterday I introduced you to Motif Investing (introduction here). The quick takeaway: it is a great way to buy up to 30 stocks with one single brokerage fee of $9.99. Oh and one other minor detail: they’ll pay you up to $150 to do it.

I’m seriously considering trying it out myself. It seems ideal to run a set-it-and-forget-it-until-you-rebalance-it investing plan. Over the years, many people have written about “Lazy Portfolios” consisting of a few ETFs designed to broadly diversify your investments. It only makes sense that the Lazy Man have a Lazy Portfolio, right? My last attempt at a lazy portfolio was almost 7 years ago to the day. I imagine that portfolio with bonds and global real estate would have weathered the banking collapse in 2008 better than some portfolios.

Nonetheless, it is time for an update. Rather than rush into creating my own Motif, I thought, “Why run a strawman version by you, the readers, and get some feedback?”

Thus, I give to you the Lazy Portfolio (version 0.1):

InvestmentTypeTickerPercentageExpense RatioTotal Expense
Vanguard Total Stock MarketUSVTI25%0.050.013
Vanguard Small-CapUSVB10%0.090.009
Vanguard Small-Cap ValueUSVBR5%0.090.005
Vanguard Total International StockInternationalVXUS17%0.140.024
Vanguard Emerging MarketsInternationalVWO17%0.150.026
iShares MSCI Frontier 100InternationalFM6%0.790.047
Vanguard REITReal EstateVNQ10%0.100.010
Vanguard Total Bond MarketBondBND10%0.100.010
Total100%0.143
Average Expense Ratio

I know that there’s no perfect portfolio for everyone. We all have different risk tolerances. Someone older would probably want more bonds and fewer stocks. That said, here’s a brief explanation of why I went with the above assets and percentages.

I wanted to invest equally in United States and international companies. I think it is a little self-centered to invest a huge amount in your own country, because a bad economy will doom you twice: poor local job prospects and a crashing stock market. However, the United States has many companies that do business globally… in some ways there is an international component to the US-based companies.

Within the US companies, I wanted to put more money towards small capital stocks. I’ve read in numerous places, that over the long term they’ve performed better… with small cap value doing particularly well. Also, it looks like 70+% of VTI is in large capital companies. The Small-Caps balance that out.

On the international side, I went with three funds. The Vanguard Total International Stock is a bit like Vanguard Total Stock Market in that it doesn’t really reach everything very well. A quick look shows that around 65% of it is in Europe and Japan and 80+% are large companies. Vanguard Emerging Markets helps diversify to smaller countries. Finally, I put a small amount into frontier markets because I like them for the reasons outlined here.

The end result of the above is 80% in stock markets. I still young (at least people tell me that), and I’m an aggressive investor. I’m also looking at doing this with money that I don’t plan to touch for 30 years. This gives me the ability to take a little more risk to get higher returns. I may invest my 2 year old’s money in it, so again, aggressive is good.

The last 20% is divided evenly into real estate and bonds. These are not correlated with the stock market, so it gives me a little diversity. I thought long about putting a commodity ETF in there, but they haven’t performed as well I hoped. I didn’t find a commodity ETF that I was particularly enamored with.

While on the topic of being enamored with ETFs, you may have noticed that whenever possible I went with Vanguard ETFs. They are well known for keeping their expenses really low. This way more of my investment goes towards the investment, not the managers of the investment. There might be one or two stocks with lower expense ratios, but that gets to be a little like chasing pennies. As you can see my effective expense ratio (minus the $9.99 Motif Investing commission) is 0.143, which means that I am paying $14.30 in expenses for every $10,000 I invest.

One can make an argument that I should take the iShares MSCI Frontier 100 out. It has, by far, the highest expenses. If I left it out, it would lower my expense to $10.40 in expenses for every $10,000 I invest. Is it worth it? Maybe, since it is a small part of the portfolio and a pretty non-traditional investment to begin with.

What else should I look into with here? In some ways, I’m already stretching the limit of “Lazy” by having eight stocks in a Lazy Portfolio. However, I’ve got room for 22 more in my Motif, if I want to get more detailed. Should replace some of the US large capital with some US mid-caps? Should I go into a global real estate fund like I had mentioned back in 2007? What would the expense ratio ramifications be of that? Should I look into adding BRICs in my international allocation? What about an international bond fund?

So many questions. Hit me up in the comments with your answers.

Big Savings on Brokerage Fees

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I recently had the opportunity to meet with a couple of representatives from Motif Investing. Though the company has been around for years, I hadn’t really looked too much at them.

Why? I feel like they aren’t marketing their product to its potential. I had missed one of the MAJOR benefits that I’m going to share with you.

Motif Investing Bull
This company can save you thousands on brokerage fees!

Motif Investing’s big marketing message revolves around investing in ideas not stocks. An example they gave me is that instead of investing in Apple and putting all your hope on the iPad, you can invest in the companies that make the chips and screens. These companies make them for other tablets too, so if everyone bought Android tablets instead of an iPad, your investment would (presumably) still do well.

By investing in a Motif, you hold all the underlying stocks the same way you would as if you made a bunch of small trades.

The iPad example makes sense. However, there are some Motifs that don’t make sense. For example, there is a Motif of stocks that consists of companies that sponsor sport stadiums. Maybe it would be good to give to a kid, but there’s no common sound investing strategy there… except for maybe having a market budget that lends itself to that. The existence of those meaningless Motifs ruined the whole idea for me.

However, when I talked with them, they explained that you can create your own Motif and buy and sell it for $9.99. That means you can buy up to 30 stocks (including ETFs) for a single $9.99 fee. Of course typical spreads and ETF fees (where applicable) of the underlying stocks apply. Think about it for a minute though… you can buy a whole portfolio at once.

As I went through their website, I saw that Motif does market this benefit after all. There’s a whole page showing how you can spend $300 buying 30 stocks elsewhere or under $10 at Motif. That’s powerful stuff.

And if you act soon with that link they’ll even give you up to $150 in free money just for investing through them.

I have to think that somewhere their marketing department has dropped the ball. I simply don’t see how other brokerages compete with that.

The biggest question I had was: How do I rebalance this? The answer is that the owner of the Motif can rebalance the Motif for $9.99. The interesting side effect to this is that if I create a Motif and you invest in it, you are at my mercy. Imagine how you will feel when I rebalance the portfolio to be 99% invested in a Russian ETF. Cue the:

I got word from Motif that my understanding there was completely wrong. Everyone gets an email and has the option whether or not to rebalance with the owner of the Motif. That’s a much better solution. Unfortunately, this makes the maniacal laugh a little anti-climatic. It’s still fun though:

My suggestion would be to be very careful of investing in someone else’s Motif unless you really trust them. Even then it may be better to just copy yourself, so you can be the owner.

Tomorrow we’ll explore how we can use Motif’s tool for fun and profit. In fact, it just might be the solution to a question I asked about a month ago.