company name

Understanding “The Buy List” and “The Portfolio”

First, at the risk of stating the obvious, each Portfolio is constructed of those stocks that fit the yield, quality and growth hurdles set for that particular strategy.

Second, you need to decide how much of your portfolio you want invested in stocks, how much in bonds.  Factors that may bear on this decision would be your age (in general, the younger you are, the larger the role stocks can play in your total portfolio), the size of your current portfolio (the more money you have, the larger the role stocks can play in your total portfolio), your need for income (the more income you need, the larger the role bonds should play in your portfolio), how well you sleep at night during times of high market volatility (the less well you sleep, the larger the role bonds should play in your total portfolio).  There may be other factors particular to your personal financial condition that will affect this decision. 

Third, focusing on your equity funds, for simplicity purposes, we have structured the Portfolios based on commonly accepted Industry Sector and Industry nomenclature.  The broad Industry Sectors are: Interest Sensitive, Consumer, Industry, Energy and Transportation.  Within these sectors are the specific industries.  In our listing beside each Industry Sector and each Industry, we have placed the rough percentage weight as determined by the Standard and Poor’s (S&P) 500 Index.  For example, the Interest Sensitive sector might contain approximately 25% of the stocks of companies in  the S&P 500 Index; Banks might account for approximately 7.25%   Note:  All things being equal our Portfolio’s holdings would be weighted roughly in line with the S&P 500 Index,.ie. if 7.25% of the S&P 500 Index is made up of bank stocks, so would our portfolio.  However, all things are never equal, so we may at times be over weighted or underweighted in Industry Sector or an Industry based on macroeconomic, industry specific or pricing reasons. 

At this point, let me re-emphasize that positions in these Portfolios are stocks that we have bought, at the price we bought them at, on the day that we said that we bought them. 

For newcomers, you have several choices as to how to start constructing your Portfolio.  The simplest and the one we recommend is to buy a 3% (equal to the Total Value of the Equity portion of your portfolio times .03) position in the stock of each company on the Buy List.  This alternative will require some patience because frequently we have only one or two Buy recommendations.  Hence, based on Market conditions, it will take some time for you to get fully invested. 

You may want to keep you funds invested in your current strategy and gradually Sell those positions and reinvest the proceeds into our stocks as we recommend them.  You may be disappointed enough with your present situation that you may just want to liquidate your current positions, leave the funds in cash equivalents and gradually move into positions that we recommend.  Finally, you may want to buy all the stocks in ‘The Portfolio’ and then follow our recommendations from that point.  While that gives you a new portfolio in stocks that fit all our fundamental criteria, it would violate one of our most important principals—price discipline.  So while we love the stocks we own, we love them because we bought them ‘right’ but we would not recommend buying them outside of our Buy Price Discipline.

Reading “The Buy List” and “The Portfolio”.  Specific description of each column

Industry:  Discussed above

Securities:  The name of each stock owned in the portfolio.

Symbol:  The stock symbol utilized by trading exchanges.

Relative P/E:  The volatility adjusted mean purchase price price/earnings ratio.  The math of this number is all part of our ‘secret sauce’; but in rough terms, we have taken the historical range of the price/earnings ratios of the company, adjusted that range for the volatility of the stock and determined the price/earnings ratio at which we would buy the underlying stock.

Earnings:  Our earnings estimate for the year specified.

Current Price:  Closing price of stock on preceding Friday.  Note:  Since we take a very long term view, we see no reason to update prices daily unless the market is in a period of extreme volatility.  In that case, we will update the prices daily.  VERY IMPORTANT:  In any case, (1) if a stock in the portfolio reaches a sale price, (2) if a stock in our universe reaches its buy price or (3) if a stock on our buy list advances outside our buy range,  irrespective of market volatility, we will notify subscribers.

Buy Price:  The maximum price within our Buy Value Range that we would pay to Buy this security.

Stop Loss:  The price at which a stock must decline to trigger a sell order.

Sell Half:  We recommend selling one half of this security’s position above the indicated price.

Notes:  Describes the last action we took with respect to the stock.  The date is the date on which the action was taken.  BT = bought. RMV = removed from the Buy List. SLD1/2 = sold half of the original position.  The price is the price when the action was taken.