8/3/08

Jim Jubak's Portfolios for Income Investors

Two reasons for this post:

1. Many readers of this blog are interested in dividend paying stocks. This may alert those among them who have never heard of Jim Jubak to his income portfolios.

2. Some time this month (hopefully soon) I plan to put up a review of Motley Fool's Income Investor newsletter. Jubak's Dividend Portfolio will be a useful comparison.

Jim Jubak is senior market's editor at MSN Money. He usually writes two columns a week, which are published on Tuesdays and Fridays here. Sometimes he makes mistakes, but usually he is dead on. As an example, check out his article on Blackstone (BX) before the firm's initial public offering last year.

Jubak runs a number of model portfolios, which have done very well. His main portfolio, Jubak's Picks, has returned over 13% annually from May 1997 through June 2008.

Jubak's Dividend Stocks for Income Investors has also returned over 13% annually (from late 2005 through April 2008). He plans to retire this portfolio, and has started constructing a new one, called the Unfixed Income Portfolio. He announced it here.

The following is a review--sort of--of the Dividend Stocks for Income Investors portfolio. Where appropriate I mention Jubak's other portfolios.

When started, the Dividend Stocks for Income Investors goal was "to find equity investments with yields at or above the 4.5% paid by the 10-year Treasury note that are also safer than those Treasurys."

The Good

1. It's free. All you have to do is read Jubak's columns.

2. Jubak has a great track record as a stock picker.

3. The model portfolio method is much easier for readers to replicate than what newsletters typically do. With a model portfolio, Jubak has limited funds to work with. When he adds a stock, he has to do it with the cash in the portfolio. If there is not enough cash, he has to replace an old holding with a new one. This is much closer to what individual investors do with their portfolios, especially income investors (usually retirees with a limited amount of fresh money to invest).

Newsletters, on the other hand, usually provide a few stock picks per week or month, making it very hard for typical investors to own all their picks. As everyone makes mistakes, even the best newsletters pick bad stocks. If you cherry pick even a great newsletter's stock selections, you might wind up with the ones that don't do as well. For example, suppose the newsletter picks 24 stocks a year, but you can only afford to buy 10. It's entirely possible that the 14 picks you don't buy are the ones that contribute to the newsletter's market beating returns. The stocks you do buy might be the ones that lower returns.

4. The Dividend portfolio has included certificates of deposit and Treasury notes. This is different from many newsletters, which often are restricted to stocks.

5. Jubak often puts his own money in his model portfolio picks. Here are his general suggestions for new investors wishing to follow him.

6. Unlike newsletters, which give readers a certain number of picks every month (or week, etc), Jubak updates his portfolios mostly when he thinks it's a good time to buy new stocks or sell old ones. He has less incentive to crank out new picks constantly. This usually means that the picks will be better than the "our best ideas at the time" picks of many newsletters.

The Not So Good

1. For the Dividend Portfolio, there isn't a separate page with updates (the Jubak's Picks portfolio has one here). There is a tracker of sorts here, but it does not include certificates of deposit or similar positions. The new Unfixed Income Portfolio does not have any sort of tracking at all so far. Readers wanting portfolio updates have to keep up with Jubak's columns. It's not entirely a bad thing, since one can learn a great deal by reading what Jubak has to say.

2. Number 6 above notwithstanding, Jubak does face some pressure to modify his portfolio. After all, he has to keep up reader interest. Some stocks that he would otherwise hold for a longer period are sold off as a result. This is more true of Jubak's Picks than it is of the Dividend Portfolio.

3. Since portfolio picks and drops are announced in Jubak's columns, and the columns are posted at set times, portfolio modifications may not always occur at the best times.

4. Because of the model portfolio format, Jubak does not buy the same stock on multiple occassions. He does not average down or up. When he thinks a potentially good stock may go lower in the near term, Jubak tells his readers that the pick should be viewed as an anchor position and they might have an opportunity to average down at a later time.

I can't think of anything bad. To sum up, Jubak has a great track record and his model portfolios are free.