The Sane Portfolio so far has lived up to its name.

This is a collection of a dozen stocks intended to offer investors a decent return with moderate risk. Since 1999, it has done a pretty good job with that mission.

Since 1999, I have compiled this portfolio annually, with a hiatus from 2007 through 2009. Last years version provided a 15.6 percent return, including dividends from Aug. 16, 2011 through Aug. 3, 2012 not as good as the S&Ps 19.1 percent, but not bad, either.

In 10 annual periods, the portfolio has been profitable nine times out of 10, and has beaten the Standard & Poors 500 seven times out of 10. The average return has been 10.7 percent, compared to 5.5 percent for the S&P 500. The numbers both for the S&P and for the portfolio would be lower if I hadnt temporarily retired as a columnist during the bear market of 2008.

Results of my column recommendations should not be confused with those for real-money portfolios I manage. Column results are hypothetical and dont reflect trading costs or taxes. Also, past performance doesnt predict future results.

To be eligible for inclusion in the Sane Portfolio, a stock must pass seven tests: a market capitalization of $1 billion or more, a return on stockholders equity of 10 percent or better and a price/earnings ratio of 18 or less. It must also have a price/book ratio of 3 or less, a price/sales ratio of 3 or less, debt less than stockholders equity and earnings growth averaging 5 percent or better for the past five years.

Once I select a stock for membership, it stays in the Sane Portfolio unless and until it flunks one of the tests.

This year, seven of the 12 members of the portfolio have to be replaced. Kicked out were AT&T, Diamond Offshore Drilling, Dreamworks Animation SKG, Gap, Greif, Harris, and Walt Disney.

Retaining their status in the portfolio for a third straight year are Cliffs Natural Resources, Cubic and Exxon Mobil. Back for a second time are Hewlett-Packard and Western Digital.

Besides the returnees, 170 stocks meet the statistical tests for inclusion this year, so I had a big field from which to select the seven new entries. And here they are:

Originally posted here:
New investment mix a Sane way to success