The adjusted yield started as a means of comparing stock yield to bond yield. The differences between the types of assets being considered with adjusted bond yield being adjusted for inflation and adjusted stock yield being adjusted for dividend growth and debt. Over the years, I have come to use the adjusted stock yield as my principle stock performance number.
The dividend value parameter is used as a way of combining performance with relative market valuation, so a stock at any point in time may be selected for purchase.
The credit rating is used as a means of quantifying default risk. I can and do look at other parameters as limits for selecting stock, but I wanted to include default risk as the weighting parameter. As soon as you use diversification to reduce risk, weighting of the various stocks becomes an issue. I decided that since diversification is used to reduce risk, so should the weighting. This allows me to hold larger amounts of the high quality stocks, while not precluding stocks that are of lower quality but may have high potential. I know that credit rating is not perfect and I do know the history, but credit rating is still the best overall parameter I can find for default risk.
This is an investment strategy which in many ways tries to mechanize the process after the selection of the short list of stocks. However, the investor must supervise the process realizing that none of the data is perfect.
The dividend value parameter is used as a way of combining performance with relative market valuation, so a stock at any point in time may be selected for purchase.
The credit rating is used as a means of quantifying default risk. I can and do look at other parameters as limits for selecting stock, but I wanted to include default risk as the weighting parameter. As soon as you use diversification to reduce risk, weighting of the various stocks becomes an issue. I decided that since diversification is used to reduce risk, so should the weighting. This allows me to hold larger amounts of the high quality stocks, while not precluding stocks that are of lower quality but may have high potential. I know that credit rating is not perfect and I do know the history, but credit rating is still the best overall parameter I can find for default risk.
This is an investment strategy which in many ways tries to mechanize the process after the selection of the short list of stocks. However, the investor must supervise the process realizing that none of the data is perfect.