10 tools for building a portfolio of high-yield shares

Investing in high-yield shares seems to be all the rage at the moment, and that’s no bad thing as high yield shares have been shown to outperform market averages in the long-run.  The problem is that there’s more to picking high yield shares than simply looking for a high yield!

There are many other factors at play, most of which relate to the ability of the company to pay that dividend and preferably grow it over time.  But there are other factors, like knowing when to sell and move on and how to mix and match high-yield shares to reduce risk and increase returns.

So here are ten resources that I use or have used to find and manage my investments.

Use a proven and usable strategy

Investing is hard enough, but you’re only going to make it harder by not having an overall strategy.  If you buy and sell shares without a plan, then you are more likely to get blown around by all the huff and puff and nonsense that gets pumped out by some media outlets (sometimes known as the “wall of noise”).

Stock picking strategy

If I had to distil my high-yield strategy down into just a couple of books, I’d first have to pick The New Buffettology by Mary Buffett.  It’s a great overview of the whole quality value investing philosophy (although she calls it selective contrarian investing) of buying above-average businesses at below-average prices.

I know it isn’t directly about high-yield shares, but it is about investing in quality companies at low prices, which is an oblique (and perhaps better) way of looking for high-yield shares rather than just looking for high yields.

Portfolio management strategy

Another superb book is The Intelligent Asset Allocator by William Bernstein.  This book is avidly against stock picking and promotes the idea that the markets are efficient and cannot be beaten by mere mortals.  Although I disagree, the book still has many fundamental ideas about investing, about risk and return, and about how diversification across assets that move independently of one another (i.e. one zigs while the other zags) can reduce risk and improve returns at the same time.

I think combining the stock-picking ideas of The New Buffettology and the portfolio management ideas of The Intelligent Asset Allocator will take most investors a long way towards a sensible investing strategy.

Get access to long-term data

Once you have a strategy, you need to put it into action.  One of the key features of the strategy that I use here at UK Value Investor, which I share with Buffettology, is looking at long-term data.  I prefer to look at company data over the whole of the last decade rather than just the latest 1, 3 or 5 years that most investors seem to look at.

There are various places where you can find this fundamental data:

Morningstar Premium is one of the best and has lots of data for most equities going back ten years.

Although Morningstar is mostly focused on funds, they do have good data and analyst reports available as part of their Premium plan.  If you go to their site and type Vodafone (for example) into their search box at the top, you’ll be taken to a page where you can access some really useful stuff.

It’s got all the standard information like share price (with an interactive chart) and key financial data for the past few years, plus some additional ratios like EV/EBITDA and ROCE.  You can get five years of historical data for free, but as a premium subscriber, you get:

• Ten years of historic data
• Morningstar’s research report
• Ratings for fair value, uncertainty and economic moat

You can find out more about the Morningstar equity research methodology by downloading their methodology guide (PDF), which in itself is a useful guide to assessing companies and their shares.

Stockopedia is another solid source of information and data and comes with a range of tools that will be new to most UK stock pickers. 

Although I’ve spoken about Stockopedia quite recently in this lengthy review, I’ll cover the basics again here.

It’s a relatively new site with a focus on a range of ‘guru screens’ which PRO members can use and change as they see fit.

You can get the same kind of information that you get with Morningstar (minus Morningstar’s proprietary ratings and research), but you also get more ratios like the Magic Formula, F-Score and many others.

There are many other features, including a virtual portfolio tool where you can get some great aggregate data on your own holdings, and there’s an active community of investors who write and comment on articles.

Sticking with the stock screening theme, Sharelockholmes is another great alternative with a huge range of both fundamental and technical metrics.

Sharelockholmes may look a little bit “old school” compared to some of the other tools in this list, but it’s very affordable and very powerful.  It does one thing, and it does it well, which is to allow users to build as many screens as they like from a very wide and growing list of metrics.

The data looks like it comes directly from the annual reports, which is slightly different from the other providers who (I believe) get it from computer data feeds.  This means that Sharelockholmes has data that some others don’t, such as adjusted earnings.

I like this site for its simplicity and speed.

ShareScope is another screener, this time with a heavy focus on technical (chart-based) factors, and the best virtual portfolio tool that I’ve seen.

ShareScope is one of the most popular tools for active investors in the UK and has won more awards than I care to mention.  It’s a downloadable bit of software rather than a website, which has pros and cons, such as it being faster than a website but is more of a strain for the computer to run.

There are two main bits of ShareScope for fundamental investors rather than technical traders.

• A powerful data mining (screening) tool
• The best virtual portfolio software that I’ve seen

The screening and data tools have fundamental data going back up to, and in some cases more than, ten years.  It’s easy to put together a screen and then drill into each company to see what it’s really like.

As for the virtual portfolio facility, it’s the only one that I’ve seen that will work out dividends and tax returns too!  It’s very useful for the private investor.

Read company results and announcements to understand each company in greater detail

It’s fine to start off with screeners and purely quantitative approaches, but investors generally want to know more about a company than what its PE ratio is.  They want to know what the company does, how long it’s been doing it, what the industry is, and so on.

My preferred approach here is to look at the regulatory announcements, which include annual and interim results, interim management statements and other material news items that may be of interest to shareholders.

Investegate.co.uk is the first place that I head to for this information.  They have a great archive where you can dig back at least ten years on most companies, which is further back than most companies will have on their own websites.

To find these results:

1. From the home page, you can run a search by company name or EPIC code.
2. From the list of search results, you can click on the company name in the “Company” column.  This will take you to the announcements page for that company.
3. Click on the little button with the two downward arrows, and you’ll get all the announcements going back many years.
4. Just search for “report” or “results” and you’ll quickly find lots of qualitative information to go along with your quantitative data from the tools above.

The site also has some nice fundamental data on the fundamental tab, such as shares in issue (useful for calculating revenue per share which is something that none of the data providers seem to pay much attention to).

You can even subscribe to updates either by logging into Investegate or by picking up the RSS feed.

This site isn’t without problems, as sometimes the announcements don’t seem to come through.  I have missed the occasional report or statement because of this, so although I will keep using Investegate for their announcements archive, I’m also experimenting with getting these announcements from other sources.

I’m currently trialling the one from the London Stock Exchange because if anybody should be a reliable source of regulatory announcements, it’s the LSE.

Control your behavioural

So now you have a strategy, good sources of data, ways of screening out most companies that you’re not interested in and perhaps even some software to run and analyse your own portfolio.  You’ve also got access to all the company results going back a decade so that you can see what they did to produce all those sales, profits and dividends.

But that’s not all because knowing how to invest and having the tools to invest is only half the battle.  The other half, which is arguably more important, is being able to apply your strategy consistently and with discipline over very long periods of time.

I guess it’s a bit like keeping fit.  If reading about it and having access to a gym was all we needed, then everybody would have bulging muscles, a six-pack, and be able to run a marathon in 2 hours.

The truth is that knowing what to do is less important than actually doing it.

The power of checklists

Checklists are one of my favourite ways of making sure that I stick to my investment plan.  I try to turn everything into a checklist, and if you don’t realise how powerful checklists can be, you might want to read The Checklist Manifesto by Atul Gawande.

Make checklists for everything. For example:

• When you buy and sell (I make one buy OR sell decision each month, regardless of what I think the markets are doing, which helps me to stay detached from the “wall of noise”)
• What quantitative factors you look for in the company’s results and in the share’s valuation
• What qualitative factors you look for in each company
• How you build your portfolio, i.e. your diversification policy, and what industries you prefer or won’t invest in.
• How you react to different situations, like dividend cuts, rights issues or losses.

Stay detached from your investments and the “wall of noise”

I think one of the worst things that an investor can do is to check their portfolio every day or even every week.  Although I check regulatory items every day because they are pushed to me through my RSS reader, I don’t actively look at the business news every day, and I certainly don’t check my portfolio’s value even every week.

News and share prices are random, so you might as well keep track of which names are most popular for baby boys; they’ll each have about as much correlation to long-term investment results.

My tool for avoiding the wall of noise is purely psychological.  Basically, I look at the stock market with long-term “blinkers” on.  In other words, I focus purely on where each company and its share price will be five years from now.

I know from experience that 99.9% of the news that comes out will have no relation to where the company and its shares are in 2018.

Instead of watching a screen and seeing that Tesco shares are now 0.6% down from where they were yesterday but 0.4% up from the day before, I prefer to spend my time running my business, building train sets with my son and reading books about physics.

Find something else to do which is more interesting than watching share prices (which should be pretty easy for most people) and go and do that.

Life is far too short and precious to spend any more than a minimal amount of time staring at a screen with a share price on it!

So there we have it.  Get a strategy, get a good stock screener, get access to long-term data and information, and finally, get control of yourself through checklists and a long-term view.