The reason we started Quantigence is because we wanted an objective strategy for DGI investing that would allow for as little subjectivity as possible by analyzing each industry using a points based system called Q-Scores. What you won’t see us doing is buying or selling a stock on a whim based on the most recent opinion of some pundit on Seeking Alpha. This brings us to the topic of this article which is why we’re replacing Sherwin-Williams (SHW) with Ecolab (ECL).
When we first analyzed the materials sector, we came up with the below table:
Since APD and PX operate in relatively the same areas of business, we chose APD since we already had a position in them and SHW because it had a higher Q-Score than ECL. As it turns out, we were using incorrect values for SHW’s international sales along with a number of other stocks. After recalculating all our Q-Scores with the correct international sales data and refreshing all the other data for August we came up with the below adjusted table for the materials sector:
As you can see, SHW fell by 160 basis points. This means that now ECL has a Q-Score that is 140 basis points higher than SHW. Our conclusion is that if we used the correct data when analyzing the materials sector in the first place, we would have picked ECL over SHW. For that reason, we are going to replace SWH with ECL effective today.
Note that this is not a big deal at all from a transaction standpoint as we barely even started accumulating SHW using our monthly “dollar cost averaging” accumulation method. We’ll simply sell the few shares of SHW we bought and start accumulating ECL over our standard 5-year horizon which means we buy $225 in shares per month (or about 2 shares at current prices). We’re super excited to be adding a new business to our portfolio that frankly we knew almost nothing about before today!