This blog covers the general topic of financial markets.


Stock Selector System by Michael D Sheimo

first posted: 2025-01-29 07:01:23.279666

Michael D Sheimo is a 80'ss ML stock broker who always wanted to be a writer. He started to author books in the late 80s and 90s.

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Four categories of stocks

Stock Selector System is suggesting the following categories, while avoiding to overanalyse any stock which leads to analysis paralysis or false certainty through tapped priors:

  • income stocks: safe stocks with increasing dividend, need to double check if dividend goes down, check payout ratio, target of 7%
  • growth stocks: should be fast grower, above 20% per year, target is 25%
  • total return stocks: should be large and mature, dividend paying with still some growth in the 12% to 20% range. Target is 12%
  • speculative stocks: market damage, new companies, new growth, turnaround, takeover. Avoid the sucker bait: such as buying with downward movement and no improvement. Examples: Ford/GM, Amgn as new growth...

Diversification and expected return

Sheimo considers portfolio of 250k to 1m, suggesting 5-10 stocks per substrategy. Typically 20% income, 30% growth, 50% total return. The main point is that the investor should have a return target for each bucket and track his performance.

Having an expected performance target makes tactical reviews possible.

Metrics for Selection

  • income stocks: div yield, do div grow, price, 52wk low, 52wk high, 1yr perf
  • growth stoch: current p/e, 5y avg p/e, pct diff, 5y rev growth, 5 yr earn growth, 5y total (price+div) return
  • total return stoch: use both div and growth criteria

Conclusions

Much of the book pre-dates internet. We are talking about graphing charts on paper vs lotus 123 spreadsheet vs buying printed charts subscription from SP500. This is a beginner book that gives some target numbers for investors.