Quality, Growth and Value

Signals are mixed--the stock market is overheated, inflation is bubbling, trillions are being pumped into the economy.

In times like these I revisit my allocation, rebalance my portfolio, and cycle away from risk and towards quality.

As a buy and hold investor, I don't make large moves unless I see a clear opportunity. In early 2020, for example, I had some cash sitting aside due to a 401k from a company that shutdown. As the market crashed due to Covid-19, I moved that cash back into the market. The timing had more to do with luck than anything. I don't try to time the market, but I want to be in a position to take advantage of opportunities that arise.

Right now, I am focused on rebalancing my portfolio to ensure I have the proper allocation going forward.

With the hot stock market, my portfolio is now weighted heavily towards equities, so I have been building up a bigger cash/bond position appropriate for someone closing in on retirement in less than 15 years.

As I looked through my portfolio, I saw some risky holdings that could be pared down and I added quality stocks that could weather the market ahead.

When evaluating stocks, I place an emphasis on growth, then quality, then value.

My stocks fall generally in one of three baskets: growth, quality growth, and undervalued quality growth. 

Growth: Stocks with strong revenue and earnings growth potential are the riskiests stocks I hold in my portfolio. These tend to be small cap stocks that appear "overpriced" except for when taking into account aggressive growth potential. Most of these positions are small, and I focus on the company, not the often volatile stock price.

Quality Growth: These are the 800 pound gorillas: Google/Alphabet, Apple, Amazon, Microsoft, etc. Producing solid growth at a reasonable price, these companies have a track record of performance including revenue and earnings growth with projected growth going forward.

Undervalued Quality Growth: I don't buy value stocks, unless a reasonable return is projected. The market tends to be cyclical and opportunities to invest in quality companies, including companies that pay dividends, that are currently disfavored among investors provides some protection against downsides risks in my portfolio. I look for quality companies, with reasonable growth projections, that are look promising at a current stock price.