On Monday, after a reshuffling of $2.8 trillion of market cap across three sectors, brand-new sector...
Columbia: Sportswear and Splits
09/05/2014 10:00 am EST
As the name of his 2-for-1 Stock Split Newsletter implies, Neil Macneale focuses exclusively on stocks that have announced splits; here, he discusses his strategy and the latest addition to his model portfolio, a leading player in sportswear.
Steven Halpern: Our guest today is Neil Macneale, editor of 2-for-1 Stock Split Newsletter. How are you doing, Neil?
Neil Macneale: I’m just fine, thanks.
Steven Halpern: You began your 2-for-1 portfolio back in 1996 with $50,000 and now you are celebrating your 18-year anniversary and the portfolio is worth $322,000, up 546%. Could you provide our listeners with a brief overview of the strategy that’s led to these long-term gains?
Neil Macneale: Well, sure. The strategy is pretty simple, really. It’s kind of a one-trick pony. If you look at the pool of companies that have announced stock splits and limit your investments to those companies and roll them through time—by buying one new split every month and selling off the oldest one—it turns out that that group of stocks, on average, will outperform the market by several percentage points and that’s proved to be true for the 2-for-1 portfolio.
Our annualized return since we’ve started is 11.2%, as of the close yesterday, and annualized gain for the Wilshire 5000, as an example, is up 7%; so, the stock split strategy really is proving itself and it’s all based on the fact that companies that announce splits look forward to great returns over the next several years.
This is—of course—on average. Not every company performs, but if you have a well diversified portfolio of those stocks, chances are you’ll do better than the market.
Steven Halpern: Now, many investors are hesitant about investing while the stock market is trading at all-time highs, yet, as you’ve explained, your strategy buys a new stock every month regardless of the level of the market; so, in effect, you’re eliminating the need to try and time the market. Could you expand on that?
Neil Macneale: Yes, the idea here, of course, is that it’s impossible to time the market. That’s been said over and over again by all the great investors. Our portfolio does act like an index fund and it’s highly correlated with the market, so you can expect the portfolio to go up and down pretty much right in line with the broad market indexes.
However, the trick here is that we want to go up a little bit more when the market’s doing well and we want to go down a little bit less when the market’s not doing so well and that’s proven to be the way it works over time.
Steven Halpern: Now, in a way, your approach has some similarities to dollar cost averaging because you’re also continuing to buy even when the market has pullbacks.
Neil Macneale: Yes, that’s right. And—if we’re selling a stock every month—we’re getting the best price for it when the market is up and we’re, of course, paying top dollar for the stocks we’re buying. But—when the market’s down—we’re buying stocks at the best prices even though we’re not getting the best prices when we sell. So it does average out.
Steven Halpern: Now, we’re going to look at the latest addition to your portfolio, which happens to be an apparel stock; but, before we turn to the particular stock, would you address the fact that you really don’t like investing in retail in general.
Neil Macneale: Retail is not so much the question. I have fixated, for instance, recently, with TJX and Ross stores. They’ve been winners for us; but, in the fashion business, I haven’t done so well.
Over the years, I’ve had bad luck with stocks, for instance, like Aeropostale and Tommy Hilfiger and so I’ve been—I think the reason for that is that I have no knowledge of the fashion business.
It doesn’t make any sense to me, really, at all, and it relies on the fad of the day, which can change literally overnight, so I think that’s why I don’t do so well with those companies; but, there are obviously exceptions.
Steven Halpern: Now, despite that aversion to the sector in general, your latest pick for your portfolio is Columbia Sportswear (COLM). What’s the attraction here that warrants buying?
Neil Macneale: Well, yes, I was hesitant, but Columbia Sportswear has a lot of good things going for it. It’s a well-established company. It’s a family-run business. It’s not exactly what I’d call a fashion stock.
It’s a sportswear company that makes specialized clothing and gear for all different kinds of outdoor sports, so it’s not really dependent on the whims of the teenage buyer.
I think it’s also an incredibly well-run company, has a strong balance sheet, and it’s very innovative. It was the first company to use Gore-Tex in outdoor wear, so it’s a little different than a company like Aeropostale or Tommy Hilfiger.
Steven Halpern: Now, for someone who might be under-invested in general, are there any other stocks on your portfolio that stand out as particularly attractive buys now?
Neil Macneale: Well, I can give you the names of the most recent picks for the portfolio. Some of them have gone up significantly since I recommended them, so we do want to check on the PE ratios, and price the book, and don’t spend too much money if the stock is at its all-time high, for instance.
Anyway, OpenText (OTEX) was my recommendation last month, for the month before. It’s a Canadian software company. It’s doing very well.
Union Pacific Railroad (UNP) was the pick in the month prior and Apple Computer (AAPL), of course, which is—I’m really happy to have that in the portfolio. I think it’s a great company and I don’t think there is any good or bad time to buy Apple. I think that’s going to be a winner for quite a few years to come.
Steven Halpern: Well, it’s always really interesting to talk to you and we appreciate you taking the time. Thank you, Neil.
Neil Macneale: Oh, you’re quite welcome, Steve. Thank you.
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