One of the investing disciplines is knowing what securities to use to construct a portfolio. A lot of research on this blog centers around the “Rutherford 10” ETFs so that is a good starting place for investors. However, we need to recognize there are potential options that go beyond the “Rutherford 10.” As a general rule, I prefer to begin with 20 to 25 tickers when I launch a Tranche Momentum Model (TMM) analysis. Where does one go to find those addition seven to twelve securities?
To get started, first think of the “Rutherford 10.” Suggested tickers for these 10 asset classes can be found by clicking on this link. In the “Rutherford 10” we include both TIP and TLT.
The next step beyond the “Rutherford 10” is the Baker’s Dozen. While these three additional securities are not chiseled in granite, for now my preferences are:
- Berkshire Hathaway (BRK.B or BRK-B for Yahoo downloads or BRK/B for StockCharts) BRK.B acts as an additional benchmark and I hold it in a number of portfolios.
- PowerShares QQQ ETF (QQQ) This ETF provides exposure to tech stocks.
- Weyerhaeuser (WY) This stock adds a timber commodity.
At this point we now have a base of thirteen securities and these 13 give us global coverage. The next 12 options provide additional flexibility. Here is my current method for filling in the remaining securities.
- From over 100 ETFs, I screen for top ranked ETFs based on absolute momentum performance. In addition, I am looking for ETFs with a Group rating of 1, 2, or 3, and both Heikin-Ashi candles registering positive signals. All this information is available in the Kipling REDA H-A Version 2.1 spreadsheet. Later versions, when they are available, should have this information as well.
- Securities that are hold-overs from the last analysis are included. The portfolio may hold shares in a stock, but the stock will be sold. I’ll still list that security and show why it is being culled from the pack.
- The third place to find a potential investment comes from the value-momentum stock screen I run each week.
On occasion the number of securities might pass the optimal number of 20. Not a problem as there needs to be some flexibility in coming up with a quiver of securities.
Once the group of stocks and ETFs are compiled they are analyzed following the Tranche Momentum Model. Right now portfolios following this discipline are: Curie, Newton, Einstein, Kepler, Bohr, Gauss, and Huygens. As these seven portfolios come up for review, I’ll attempt to explain with some care how each is managed.