I bought 10 cheap shares. Here’s what happened next


Image source: Getty Images

In the four weeks from June 29 to July 26, my wife and I made a massive stock purchase. In total, we added 10 low-cost stocks to our existing family portfolio. Six of these stocks are blue-chip FTSE 100 index, three from mid-cap FTSE 250and one from USA S&P 500 index.

We bought this stock for three reasons. First, based on the underlying fundamentals, they all seem cheesy to me. Second, they are all well-established companies with easy-to-understand business models. And third, after the continued decline in price, all 10 stocks seem more valuable to me.

What happened to our 10 cheap stocks?

This is how our low-priced stock has performed since its purchase date. This snippet was taken ahead of lunch time on a Wednesday morning:

Company Business Index Back to date
Target Company Retailer S&P 500 16.7%
Aviva Insurer FTSE 100 15.7%
Common law Insurer FTSE 100 15.0%
Barclays Bank FTSE 100 10.6%
Direct Line Insurer FTSE 250 8.3%
Lloyds Bank FTSE 100 6.0%
ITV radio announcer FTSE 250 2.7%
Royal Letter Post FTSE 250 0.9%
Persimmon Builder FTSE 100 -3.3%
Rio Tinto Mining worker FTSE 100 -6.8%
Average 6.6%

When I saw this return, a few things surprised me. I know very well that I never get it right all the time. Still, it’s great to see eight of these 10 new stocks post early paper gains. The worst player is the big miner Rio Tinto, whose stock has lost nearly 7% of its value over the past few weeks. But that’s not a big surprise to me, as I fully expect this FTSE 100 stock to be very volatile in 2022/23.

The biggest winner is the giant US supermarket chain Target Company, whose stock has jumped a sixth so far. I was so convinced that this S&P 500 stock was so cheap that my wife and I bought it — something that almost never happens.

Another theme that stands out is that our financial stocks are doing quite well. Five of the top six players are British banks or insurance companies. Having worked for such a company for a period of 15 years, I feel that I have a reasonable understanding of the sector and the value of its stock. So far so good.

This is not a portfolio

Note that this is a mini portfolio to add to our existing investments and assets. With only 10 stocks, it is not a proper portfolio, which usually contains a minimum of 20 to 30 stocks. Instead, it’s a highly concentrated investment pot — designed to add extra dividend income to reinvest in more stocks or expenses.

Indeed, the cash yields for these 10 bargain stocks range from 2.5% (from Target) to 13.5% per year (from home builders). Persimmon). The average cash yield in 10 stocks is 7.4% per year. That’s nearly 1.9 times the FTSE 100’s annual dividend yield of around 4%.

We buy this stock for long term

Of course, it doesn’t matter to us how these stocks performed in their early days. As long-term investors, we try to look beyond current issues, such as hot inflation, skyrocketing energy bills, rising interest rates, and slowing economic growth. We bought these 10 cheap stocks to generate income for decades — and hopefully that’s what they do. Stupid fingers crossed!