Creating an Investment Worksheet - Part One

Now is the time to bring a great deal of what we have learned together in an organized fashion so that we have a basis upon which to proceed in our investing. By this I mean we need a process that we can follow and return to on an ongoing basis. If you are like me, you don’t want to feel like you are randomly going about this thing called “investing” so most people will want to have a protocol or a sheet they can refer back for reference.  This is part one of a multi-part series where I will discuss how to make an investing worksheet to keep yourself organized. I am going to use the worksheet by Jason Kelly, author of The Neatest Little Guide to Stock Market Investing (for those new to this site, I mention this book quite often on the site. Full cite: (Kelly, Jason. The Neatest Little Guide to Stock Market Investing. New York: Penguin Group, 2012. Print)). Jason Kelly provides this worksheet free online here. This is a huge help as we forgo needing to copy this all down into Excel.

Before we get to the worksheet, Jason Kelly first advocates getting your Core Portfolio set up. This is done using one of the strategies discussed on the site (Magic Formula or Dow dividend to date) for example. Jason obviously advocates the Dow dividend (and other more complicated strategies we have not yet discussed), but Joel Greenblatt’s Magic Formula would also be a safe bet for you Core Portfolio. The idea with your Core Portfolio is it acts as a base that you are confident and secure (as much as you can be with stock market investments!) will weather the ups and downs of the market well. The plan is to keep to your strategy in your Core Portfolio for the long haul knowing that the companies involved are large cap, Dow type companies that are most likely going to be there for the long term. You know how to set up your Core Portfolio – we have discussed two on this site along with the exact way to set it up and what to do each year, etc. You may have to review these strategies more than once so you know exactly what you are going to do and that is ok. You may also want to perform more of your own research into which one (or you may find another Core Portfolio strategy you like better) you prefer. The important thing is to do the research and get a handle on exactly how you are going to execute on setting up your Core Portfolio. Once you get your Core Portfolio set up, you can move on to as Jason Kelly says, “the wild world of individual stock picking”! 

How you want to mesh your Core Portfolio and individual stock picking is up to you. Perhaps you want to use 60% of your money and place it in your Core Portfolio and use 40% for individual stock picking. Or you may want to go 70/30, it is up to you and your risk tolerance. Let’s get started with the worksheet. I am only going to cover 1/3 of the worksheet in this first post, the other 2/3 will come in the next weeks as there are quite a few ratios to discuss. Again, these are all outlined in Jason Kelly’s book and I highly recommend buying this book if you are interested in further detail on all of these. Jason Kelly recommends keeping a list of 20 companies on your watch list. Perhaps 5 large cap, 5 medium cap and 10 small cap companies that are expected to grow.

Here are the first half of the categories in the worksheet:

Company Name, Symbol and Phone: If you have been following along on my site, you will know exactly where to find the company symbol on Morningstar or whichever site you are using. Also, most public companies have an investor relations link on their webpage that lists the stock symbol. As Jason Kelly points out, this may sound basic, but the symbols are easy to get mixed up and you could end up buying a stock you had no intention of purchasing. As for the phone number, you can find that on most investor relations links on the company webpage. The notion of phoning a company to ask a question seems a bit beyond us at this point but it is good to have it handy in case you do need information.

Current Stock Price and 52 week High/Low:  Again, if you have been reading this site, you will see I have mentioned these two indicators in my company profiles. You can gather this information off Morningstar or any other site you decide to use to get your information. The 52 week High/Low will give you an idea of where the current price sits and whether you are buying at a high point or a low point and what that might mean.

Market Capitalization: We are now familiar with this metric – size of the company. Larger usually means established big companies that we often encounter in almost all aspects of our daily lives. Smaller cap companies are small and typically riskier investments. Medium cap companies fall in the middle.

Daily Dollar Value: This is a new metric we have not talked about before. This tells you how easily the stock is bought and sold. Perhaps it is something you have not thought much about; but if no one has heard of the stock and no one is buying it, it is going to be equally as tough for you to sell the stock and divest yourself of it if and when you wish. This is obviously not a problem for large cap stocks which everyone knows about – someone is always lined up to buy shares of Coca Cola for example. For some small, unknown stocks, you could get stuck with shares you can’t sell. Daily Dollar Value tells you how much money is trading in the stock on the day. It is calculated by multiplying the daily trading volume by the share price. Jason Kelly says a generally accepted bare minimum is $50,000 per day. Meaning, $50,000 worth of the stock is trading in the day. Anything less could be trouble. Interestingly, he indicates that small cap investors like low volumes as it means they are getting into the stock before everyone else knows about and starts piling into it, driving up the stock price.

Sales: Sales is obvious, how much does the company sell of its product or service? It will be found alongside all of the other information. Like Daily Dollar Value, small cap investors may want less sales as it can signal an undiscovered gem.

Net Profit Margin: We currently have this ratio in our company stock analysis. This is the money or profit left over after a company has paid all its expenses. Higher is better and look as to whether this figure is going up or down over the past five years. Jason Kelly says any company making your worksheet should have a NPM in the top 20% of its industry. Industry comparables should also be found on Morningstar or similar site.

Cash and Total Debt: The more cash the better. It means the company has cash available to buy things it needs or companies that can enhance their bottom line. Conversely, high debt is bad. Debt needs to be paid back so lots of it is obviously a bad thing for the company. Later ratios will outline what you should look for in levels of cash and debt.

Sales per Share: This ratio is sales divided by shares outstanding. You will want to determine if this figure is going up or down in the past five years. Ideally, you will want to see this ratio increasing over the past five years.

Cash Flow per Share: This is ratio you will be familiar with as we have been using it currently in our company profiles. Higher values are better than lower and ideally, it should be increasing over the past five years. This is cash flow divided by number of shares outstanding.

Earnings per Share: This is another ratio we are familiar with from our company profiles. It is the company earnings divided by the number of shares outstanding. Note whether this figure is going up or down in the past five years. Jason Kelly says growth investors are looking for growth in this figure whereas value investors are often looking for a moment when the earnings are momentarily down. Overall, an increasing EPS is what you are looking for as well as increasing projections in the future.

I am excited to be learning and adding some more ratios to our roster! This spreadsheet is coming together, and I will continue with the next installment of criteria next week. As well, this series will cover what to do once you get the worksheet up and running including when to buy and sell the stocks listed on your worksheet.

***Top photo courtesy of Scott Webb on Unsplash