<FOOLISH FOUR PORTFOLIO>
Cookin' with BSP
Finding the 30 BSP stocks
by Ethan Haskel ([email protected])
Baltimore, MD (June 16, 1999) -- Last week we gave a broad overview of a mechanical investment strategy called Beating the S&P (BSP). We learned that a major goal of BSP is to create a list of 30 market-leading companies as an alternative to the 30 stocks that comprise the Dow Jones Industrial Average. Once we've developed our non-Dow universe of stocks, we can apply our high-yield/low price formulas to choose an even more select group of four or five stocks for our portfolio. Now let's get down to the nitty-gritty of selecting our 30 BSP stocks.
First we need to find an appropriate database to use as a starting point. The ideal database will be authoritative, easy to use, and include all the relevant criteria we need to find our stocks. Ideally, the database should also have a long track record, allowing us to backtest any proposed strategy.
After an extensive search about four years ago, the most suitable database I found was that published by Business Week, which annually issues a list of the major companies traded in the U.S. The title of the list and format have changed slightly over the years, but recently it has been published in March of each year. Currently titled "The Top Companies of the S&P 500," the list records the market capitalization, sector, and yield of all the stocks that are important to us.
Let's think of the Business Week issue as our cookbook from which we can create a delectable BSP stew. Here's the recipe for finding our 30 BSP stocks:
1. Using the Business Week listings, make a list of the stocks that have the highest capitalizations (called "market value," according to the listing). List the stocks in order, from highest market value down to the lowest. Taking the top 75 stocks or so should be sufficient to give you the final BSP 30 stocks.
2. Exclude the following stocks -- just cross them off the list:
- Stocks that are currently in the Dow 30.
- Stocks that are not listed as paying a dividend.
- Stocks from companies that are not U.S.-based.
- Stocks that are listed as a utility, or telecommunications stocks listed as telephone companies by Standard and Poor's.
[Note that the "Baby Bells," formed from the break up of AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>, currently are listed in Business Week as telecommunications companies. They formerly were listed under utilities and likely are not candidates for the Dow 30. Unlike AT&T or Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %>, for instance, companies such as BellSouth <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BLS)") else Response.Write("(NYSE: BLS)") end if %> or SBC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBC)") else Response.Write("(NYSE: SBC)") end if %> are designated as telephone companies by Standard and Poor's, and thus are excluded from the BSP 30.]
3. After the appropriate exclusions, the top stocks on the list are prime candidates for the BSP 30 stocks. To achieve diversity, one final step must be taken. Only the three largest stocks belonging to any one sector (defined right there in the list) can be accepted. After three stocks from any one sector are included, the fourth (or fifth, etc.) highest-capitalized stock in the same sector cannot be used. One then continues down the list until one obtains 30 stocks meeting all the criteria, including the diversity screen.
Congratulations. In three easy steps, you've found your 30 BSP stocks.
Stir in a little fun, add a pinch of curiosity to spice things up, lick that spoon, and declare your culinary masterpiece ready for serving. Best of all, the recipe takes less than a half hour to complete from start to finish, feeds an entire family for a year -- and is guaranteed 100% cholesterol-free. Bon Appetit!
As of March, here are the BSP 30 stocks for the year:
American International Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIG)") else Response.Write("(NYSE: AIG)") end if %>
Anheuser-Busch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BUD)") else Response.Write("(NYSE: BUD)") end if %>
BankAmerica <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %>
Bank One <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %>
Bristol-Myers Squibb <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMY)") else Response.Write("(NYSE: BMY)") end if %>
Carnival <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCL)") else Response.Write("(NYSE: CCL)") end if %>
Chase Manhattan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %>
Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>
Dayton Hudson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %>
Eli Lilly <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LLY)") else Response.Write("(NYSE: LLY)") end if %>
Fannie Mae <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNM)") else Response.Write("(NYSE: FNM)") end if %>
Ford Motor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %>
Gap <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %>
Gillette <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: G)") else Response.Write("(NYSE: G)") end if %>
Home Depot <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %>
Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>
Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %>
Mobil <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOB)") else Response.Write("(NYSE: MOB)") end if %>
Monsanto <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %>
Morgan Stanley Dean Witter <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MWD)") else Response.Write("(NYSE: MWD)") end if %>
Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>
PepsiCo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %>
Pfizer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %>
Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %>
Sprint Corp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %>
Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %>
Time Warner <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TWX)") else Response.Write("(NYSE: TWX)") end if %>
Tyco International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TYC)") else Response.Write("(NYSE: TYC)") end if %>
Waste Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMI)") else Response.Write("(NYSE: WMI)") end if %>
Xerox <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XRX)") else Response.Write("(NYSE: XRX)") end if %>
******
[Editor's Note: Following are the returns of a "paper" Beating the S&P portfolio that Ethan has been reporting on in the Foolish Workshop for many months. The stocks were selected December 31, 1998 and "purchased" in equal dollar amounts to be "held" for one year.]
Beating the S&P year-to-date returns (as of 06-15-99):
Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %> +39.4%
Kimberly-Clark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMB)") else Response.Write("(NYSE: KMB)") end if %> +7.5%
Campbell Soup <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPB)") else Response.Write("(NYSE: CPB)") end if %> -17.8%
Ford Motor Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> -8.2%
Bank of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> +13.5%
Beating the S&P +6.9%
Standard & Poor's 500 Index +6.2%
Compound Annual Growth Rate from 1-2-87:
Beating the S&P +20.6%
S&P 500 +17.6%
$10,000 invested on 1-2-87 now equals:
Beating the S&P $101,900
S&P 500 $75,600
To see the Beating the S&P stocks for a portfolio starting now, go to Strategy Stocks Live
Today's Stock Lists | 1999 Dow Returns
Today's Stock Lists
| 1999 Dow Returns
06/16/99
Close
Stock Change Last
--------------------
CAT + 1/2 58.94
JPM +6 134.00
MMM +1 90.81
IP - 3/8 55.50
|
Day Month Year History
FOOL-4 +1.40% 5.32% 27.88% 29.78%
DJIA +1.79% 2.13% 17.85% 17.38%
S&P 500 +2.25% 2.20% 8.56% 8.82%
NASDAQ +4.27% 1.91% 14.83% 16.40%
Rec'd # Security In At Now Change
12/24/98 24 Caterpillar 43.08 58.94 36.81%
12/24/98 22 Int'l Paper 43.55 55.50 27.44%
12/24/98 9 JP Morgan 105.51 134.00 27.00%
12/24/98 14 3M 73.57 90.81 23.44%
Rec'd # Security In At Value Change
12/24/98 24 Caterpillar 1034.00 1414.50 $380.50
12/24/98 22 Int'l Paper 958.12 1221.00 $262.88
12/24/98 9 JP Morgan 949.62 1206.00 $256.38
12/24/98 14 3M 1030.00 1271.38 $241.38
Dividends Received $49.99
Cash $28.26
TOTAL $5191.13
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