Ringing the Bell for Stock Splits
01/26/2015 9:00 am EST
Neil Macneale, editor of 2-for-1, has been recognized by the New York Stock Exchange, which has made an index which tracks his model portfolio; he also recently had the chance the ring the bell at the opening of the NYSE.
Steven Halpern: Our guest today is Neil McNeil, editor of the 2-for-1 Stock Split Newsletter. How are you doing today, Neil?
Neil Macneale: I’m just fine, thanks Steve.
Steven Halpern: Thank you so much for joining us. For our listeners who may not be familiar with your work, could you briefly explain the 2-for-1 strategy as well as the historical case for why investors should pay attention to stock split announcements?
Neil Macneale: Okay, the stock split announcement is really a look into the collective thinking of the board of directors of a company and it’s often the signal that they feel the company is going to do very well for the next couple of years, that’s more or less the foreseeable future.
It’s been proven by academic study that that’s actually the case. Stocks that have announced a split tend to outperform the market, in general, for two to three years and we’ve exploited that by creating a portfolio of nothing but stock splits. It has outperformed the market by a good margin over the last 18 years.
Steven Halpern: So, in each month when you are assessing the stock that’s announced a split, you’ll then do your own proprietary research to determine which of those stocks you will choose to add to your portfolio?
Neil Macneale: That’s correct. We only need one. We add one a month and we take the one that’s been in the portfolio the longest off the list. That’s the way we’ve done it for the last 18 years and it’s proven to be a very simple and easily understood system.
Steven Halpern: Let’s walk through one example of how you determine whether or not to add a specific stock which has announced a split as a candidate to your portfolio, and in the most recent month, the example we’ll use is Gentex (GNTX). What’s the attraction there?
Neil Macneale: All right, well, Gentex is a manufacturer of specialty products for the auto industry and the fire protection industry, so we’re talking about things like dimmable rearview mirrors and smoke detectors.
It’s not a real glamorous business. You look at the fundamentals of these companies and compare them to other companies that have announced a split in recent history.
I go back six months. Every month I take a look, so companies, for instance, Gentex was competing with were Infosys, Panhandle Oil & Gas, Superior Uniform Group, so forth. I just compare them one to the other and pick the one that I like the best.
In the case of Gentex, they really will have reasonable price range ratio, price to book ratio will pay a nice dividend, 1.8%.
They’ve had great growth over the past few years and they are incredibly profitable, almost twice as profitable as other manufacturers. It looked like a good fit for the portfolio and that’s why we chose it.|pagebreak|
Steven Halpern: As a rule, as you explained, you’ll add one new stock to the portfolio every month regardless of the overall market environment, so timing is not an issue in your strategy. Nevertheless, in your latest newsletter, you caution that 2015 could be a rough year in the stock market. Could you share your general thoughts in that area?
Neil Macneale: I’m not predicting anything, really. As you know, we’ve been in a bull market for five years, going on longer than five years, and that’s pretty cautionary in itself.
You just got to figure something is going to happen one of these days. We don’t know what it is. Could be some foreign event, some crazy/crash on the stock market, you just can’t tell. Anyway, that’s why I’m feeling a little bit nervous.
We are still obviously going to maintain our strategy of being fully invested in the 2-for-1 portfolio. If investors have other assets that are not in the stock market, I would tend toward the more conservative things and try to diversify into things like REITs or short-term bond funds or even gold.
Steven Halpern: Interestingly with your portfolio approach, because you add a stock every month, even in a weak environment you’re in effect having investors’ dollar cost average on an ongoing basis, so they would be getting in at lower prices.
Neil Macneale: Absolutely, when the market is hot you pay more for the stock that’s added, but you get more for the stock that you sell off and vice versa when the market is down, so it’s exactly what you said; dollar cost averaging.
Steven Halpern: In December, you were invited to ring the opening bell at the New York Stock Exchange in celebration of the listing of the Stock Split Index Fund that now tracks the 2-for-1 index. Could you explain what the 2-for-1 index is? It seems like a very exciting time for you.
Neil Macneale: Well, it was exciting. It was terrific, fun to ring the bell at the stock exchange. That’s a real once-in-a-lifetime treat. The New York Stock Exchange basically has recognized that the 18-year track record of the 2-for-1 portfolio can be thought of as an index…and we’ve done that.
The stock exchange now calculates the 2-for-1 index, which is actually identical to the portfolio that’s published every month in the newsletter.
They calculate it now and publish that on a 15-second interval throughout the day so it can be used by mutual funds or ETFs to follow as an index.
That has been done by the USCF Advisors Group. They’ve created an ETF and that’s what was being celebrated at the stock exchange on December 15. It was a real treat. It was a lot of fun.
Steven Halpern: Congratulations on having your work receive such well-deserved recognition. We appreciate you taking the time with us, today.
Neil Macneale: You’re welcome Steve. Thanks very much and Happy New Year.