Today we have another installment in our Dick Davis Digests contributor series. Today’s contributor is Neil Macneale, editor of 2 for 1 Stock Split Newsletter. I decided to interview Neil after his Top Pick for 2012 was acquired last month, giving his subscribers (and some of ours) a nice 36% gain in three months. (Top Picks are just what they sound like. At the start of every year, we ask our contributors to choose their favorite investment for the coming year, and then track the picks throughout the year.) Here’s our conversation.
Chloe Lutts: When did you start publishing 2 for 1 Stock Split Newsletter?
Neil Macneale: I started the newsletter in August 1996 after reading an article by Mark Hulbert in Forbes magazine about a study related to stocks that split and how, as a group, they outperformed the market by a measurable and significant percentage for up to three years after the split announcement. Creating a portfolio containing only splits and laddering it to move steadily through time should, theoretically, give you an almost-foolproof market-beating strategy. This has proven to be the case for 2 for 1′s model portfolio over the last 16 years.
CL: How has your newsletter changed over the years? What has stayed the same?
NM: The newsletter started out in a four-page format with more personal investing information and market commentary. After several years, it became clear many other pundits were adequately covering these areas and my readers seemed to be more interested specifically in the 2-for-1 portfolio. So, in November 2002, I began using the two-page format my readers are now familiar with. It is more narrowly focused on just recent stock splits and the management of the 2-for-1 portfolio.
The portfolio is my own personal IRA account and the newsletter is now, essentially, just a report on what I’m thinking and doing with my own investments. Generally, for each month’s newsletter, I will analyze companies that have announced a 2-for-1 split during the previous month. I settled on this methodology because it imposes a discipline that keeps me focused on just a few stocks that are statistically poised to beat the market for the next three years. There haven’t been a lot of changes in the stock-picking methodology or the portfolio-management procedures since day one.
CL: What do you look for in a portfolio candidate besides split eligibility?
NM: Before I began publishing 2 for 1, I had developed an algorithm designed to rank any group of stocks to bring one to the top of the pile as the most promising within that group. Each month I run the announced splits through the program and come up with the pick for the month. The 13 variables that go into the formula will remain proprietary but, generally, I could be classified as a value investor with a preference for dividend-paying, low volatility, steady growth stocks of companies that actually make or sell products that society needs.
CL: Any thoughts on Google’s recently announced split?
NM: My first thought was, “It’s about time!” I will be looking at Google, along with any and all 2-for-1 splits announced in April, for the May issue of 2 for 1, so I don’t have any comment yet as to its suitability for the 2-for-1 portfolio. But there is one issue that the Google split brings to mind. Google and Apple, and of course Berkshire Hathaway, are the best examples of companies that just don’t seem to want to be bothered to follow the traditional pattern of splitting their stock when it gets well above the “normal” trading range. This is unfortunate, because the announcement of a stock split is one of the best insights we have into the thinking of a company’s board of directors on the future prospects for their enterprise.
CL: What’s one of your favorite stocks to buy today?
NM: Of the companies 2 for 1 has recommended over the last 12 months, I would have to say Oneok Partners LP (OKS) is the stock that would be the best buy today. It’s on a good growth path and pays a great dividend. My other most recent recommendations have already gone up to the point I would no longer buy them except after a significant correction. I should stop and say I don’t really like picking one stock as a “favorite.” I liked all the stocks in the 2 for 1 portfolio when I recommended them, but some obviously will do better than others and some, inevitably, will turn out to be real dogs. It’s the diversity of the 30 stocks in the portfolio that protects me from the occasional bad pick.
CL: What’s one important piece of advice you think more investors need to hear?
NM: It probably sounds like preaching but, in my humble opinion, there is a large percentage of investors who need to think and behave less like gamblers and more like investors in the true sense of the word. When you’re dealing with retirement savings or your child’s college fund, you have to get it right, and buying stocks on a co-worker’s hot tip or selling stocks because of a panicky news headline is not getting it right; not even close.
CL: What do you see as the biggest challenge in the market right now?
NM: The smooth and reliable functioning of the markets themselves seems to be a challenge we’re barely keeping ahead of. The astonishing growth of the worldwide 24/7 markets, the huge volume of computer-driven high-speed trading and the abdication of responsibility by Congress, our regulators and the market makers themselves are all developments I find very troubling. All markets rely on trust; strengthening the public’s trust in our markets is our most difficult but important challenge.
CL: Let us get to know you better—what else do you like to do besides investing?
NM: My former professional career centered around construction, either as a general contractor, a superintendent for large commercial projects or an inspector. I’m officially retired now but my wife and I have always liked buying and fixing up old houses and we are still doing it. The difference now is that I get to do the work when and how it pleases me. Our two children and four grandchildren live in Seattle and we also find time to go north and work on their houses from time to time.
CL: Anything else you’d like to tell our readers?
NM: Many, if not most, newsletter readers are looking for a magic bullet, a path to instant riches and they are constantly trying new letters after being disappointed their current guru hasn’t delivered. I say to these folks, “Pick a letter with a very long track record you can live with, and then commit to a program you understand and will stay with through both ups and downs.” If an investor finds this just too hard to accomplish, then they should buy a good broad market index fund and forget about individual stocks.
CL: Thanks Neil!
Wishing you success in your investing and beyond,
Editor of Investment of the Week