In order to address the first excuse, “it’s an endless job, always hanging over our heads,” I decided to find out just how little we really have to do to do a creditable job of portfolio management. What separates us from the trader or short-term investor is the fact that they must follow the prices of their stocks, and those change every moment the market’s open. We, on the other hand, are interested only in the fundamental data that is reported only four times a year.
To address the issue of how much work we must do, I did a study of all the stocks in the databases we use to find out just when they report their financial results and when the data is made available to us. It produced some interesting results.
Note that more than 2/3rds of the companies (68.3%) have fiscal years that match the calendar year, closing their books on December 31st. The next largest group (6.7%) end their fiscal years at the end of June, while 5.4% each end their years in March and September, respectively. The last noteworthy group (4.3%) is the retailers who end their fiscal years at the end of January so as to be able include their holiday business in their financials. The remaining 9.9% are scattered fairly evenly through the rest of the year.
Now, let’s throw into the mix what we know about when the data will be available for us to use. As long-term investors, we don’t have the urgency to obtain the data hot off the presses when the companies close their books. All too often, preliminary data changes after being audited or scrutinized carefully; so the data providers prefer to use the data as it has been submitted to the Securities and Exchange Commission (SEC). That agency requires the annual data to be submitted within 90 days after the end of each fiscal year, and within 45 days for the other three quarters. Allowing two weeks for the data to be massaged and published by the data providers, we find that we can plan on the data being available to us 105 days following the fiscal year and 60 days after the end of the interim quarters. With that in mind, lets look at the workload that gives us:
What does this tell us? It means that, for a portfolio consisting of a cross section of companies from the database, we would have only four days a year that would involve a lot of work, since more than 90% of the companies produce financials at the end of March, June, September, and December.
How can we translate that into our own, personal workloads (and the ticket to cutting down on our workload)? You can easily determine the fiscal year end for each of the stocks in your portfolio. You can then figure when the quarters end. On your desk calendar or in your daily diary, simply add 15 days to each of those dates and schedule your workload accordingly. Here’s a portfolio that’s fairly typical, so far as the distribution is concerned:
This, then, is what our datebook will look like.
The interesting thing about this is, when you sort it all out, you have only eighteen days during the entire year that you will have any defensive work! And, those eighteen days break down into this:
8 of those days, you’ll have only 1 stock to review.
4 of those days, you’ll have only 2 to review.
2 of those days, you’ll have 4 to look at.
2 of those days, you’ll have 7.
2 of those days, you’ll have 11 to consider.
That looks to me like you need to schedule only four days out of the year for any real, concerted effort. Unfortunately (or fortunately) one of those big days is April 15th! You will already have been immersed in your finances, so it’s probably as good a time as any to keep right on with it and do your defensive chores.
How much time will you have to spend? For the life of me, I can’t see how you would be able to spend more than ten minutes on each stock when you’re looking at the quarterly data; and a half hour after the end of the year. To be sure, for every stock you find that needs to be researched and possible replacement, you’ll have another that you can see at first glance needs no attention at all. So this will average out.
This means that the total time you might devote to this task (unless you want to make a hobby or an avocation of it) would be an hour a year for each stock. Is that too much to demand of yourself when it means you can meet your goals? And, of course, if it’s fun, you might even look forward to it! So far as I’m concerned, there should no longer be any reason why this looks like an interminable or infinite chore. So say goodbye to that excuse!
Tomorrow, we’ll get down to the business of what it is you need to do in those five-minute to 30-minute sessions. We’ll talk about Defense, what it is, what you need to do, and how you should do it.