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Ryan P. Johnson, CFA, CFP®
Director of Portfolio Management & Research
Hello. I'm Ryan Johnson, Director of Portfolio Management & Research here at Buckingham Advisors. We're here to help you improve your finances. We want to help you grow, protect, and save your money and today we're going to take a deeper dive into a part of the services that we offer that includes planning, investments, business services, and taxes.
We want to take you behind the scenes a little bit in our investment department where we research stocks on a weekly basis. When you allow us to manage your investments, you're hiring a team of analysts and portfolio managers, and each of us have years of experience. We are investors, not traders. We want to own parts of companies that we feel have durable business models.
When there's a downturn, which is bound to happen at some time, we want to be able to explain what we own and why we own it on your behalf, and sometimes I call this having a quality bias. As you can guess, we aren't into meme stocks, we don't have a newsletter that cherry-picks performance timeframes, and we don't chase story stocks like those on Reddit’s WallStreetBets page.
For us, it's more like “boring is beautiful” and we're operating on a multi-year timeline for generations of your family. The return from stocks over time generally comes from earnings growth dividends and changes in valuation. An example of valuation is the price-to-earnings or PE multiple, but I also think of it as a sentiment indicator.
How confident are investors that the company is going to deliver the expected earnings or the expected growth? If you think back to March of 2020, confidence was very low and earnings estimates were falling, which helps explain the big downturn that we saw.
As we start building portfolios, we aren't taking big sector bets. We look at the stock market one sector at a time, and we try and pick the best stocks from within each sector. But let me back up. What are sectors? Sectors are groups like healthcare, technology or consumer stocks and there are 11 sectors in the S&P 500. Over the course of a calendar quarter, we research every sector and we put those parts together to build your portfolios.
So from the bottoms up, what, in our opinion, makes a good stock? Well, before I get to that, I need to satisfy the SEC and read these disclosure statements:
- This video is provided to demonstrate our investment research and stock selection process.
- Buckingham Advisors does not represent that the security described was, or would have been, profitable for any client.
- Investments described may not be suitable for every investor and past performance is no guarantee of future results.
As generally as possible, I want to walk through a quick case study of an individual stock, but really highlighting the characteristics that we sometimes look for.
- There is a retailer that successfully serves below median income households here in the U.S. and the company grows sales every year by adding new locations and by increasing sales at existing stores.
- They also have a new store concept that serves higher income consumers.
- The company increases profit margins as they become more efficient.
- The company buys back shares, pays a dividend, has reasonable debt, and profits could grow double digits annually.
- Valuation, in our opinion, is reasonable.
In summary, we like it when we see companies that have multi-year growth plans, good visibility and growing end markets, increasing profits, returns of capital to shareholders, not too much debt, all while selling at a decent valuation.
We really get excited about digging through the market trying to find these opportunities. We feel that this approach leads to building portfolios that we would be proud to own.
I had to make my comments somewhat vague. But if you'd like to schedule a chat, one-on-one, we'd be happy to discuss your portfolio, including how we can manage investments here in concert with other accounts like an active 401(k) or TSP.
As always, I want to say thank you for your time and thank you for your continued trust.