Frequently Asked Questions
FAQ 1. Is there any way to limit losses?
That is probably the question that gets asked most frequently, and
limiting losses is probably something that is attempted by almost
all investors at some time in their investing careers. I decided to
add a separate page to address this question.
Go to
Stop Losses for more.
FAQ 2. What effect has market timing had on the Growth and Momentum Portfolio?
Before the third Quarter of 2004 no attempt was made to time the
market even though the model portfolio was generally less than 100%
invested. That was because stocks that had been held for three
months were generally sold and, if no new picks were available, cash
from the sale was held.
During the third Quarter of 2004 a considerable amount of cash was
held for a variety of reasons. That was a mistake that cost
the portfolio about 8% during the fourth Quarter. Because of that
mistake, and because all my data show that market timing is likely
to hurt more than it will help, the portfolio will be
100% invested at all times.
FAQ 3. Should I sell my stock after a greater than "normal" increase of 25% or more?
That's up to you but my data show that those stocks that have declined or advanced more than 25% during the first 30 or so trading days after their purchase are MORE likely to advance than the others, especially in a rising market.
FAQ 4. What's the best way for a new subscriber to establish a 60 stock portfolio?
More than 100 years ago JP Morgan was asked, “When is a good time to buy stock?”
He replied, “When you have some money.”
A more appropriate answer would be that it depends on the direction of the market after you buy. If the market heads straight up, then it would have been better to buy immediately. If the market heads straight down, then it would have been better to do nothing. If the market oscillates, then it would probably have been better to dollar cost average in over X number of months until the market heads straight up again.
Note that it is not possible to make the right decision unless you have the ability to predict the future. That means I cannot give you a better answer than the one JP Morgan gave more than 100 years ago.
If we are all very lucky, the economy will continue to improve and the market will continue to rise, but it wouldn’t be too difficult to develop an equally compelling argument that a mild correction, or even a global disaster, and anything in between are in our immediate future. The best advice I can give you is to be psychologically and financially prepared for all the scenarios I just described. Or take Warren Buffett’s advice: Be fearful when others are greedy, and greedy when others are fearful.
FAQ 5. A sixty stock portfolio contains more stocks than I care to buy. Why do you recommend so many stocks? Could I duplicate the returns of the model portfolio with fewer than sixty stocks?
I have determined that there may be extreme return variability if a
portfolio contains a small number of stocks so my goal is to give
my subscribers sixty new picks every quarter. Armed with the
knowledge that they are going to get close to sixty new stocks every
quarter, AND armed with the knowledge that the model portfolio on
the web will purchase new picks for one sixtieth of the current
value of the portfolio, my subscribers can allocate their resources
accordingly.
The returns could probably be duplicated by buying every second or
third recommended stock. However, the chance of out or
under-performing the model portfolio increases as fewer stocks are
purchased. If you want to duplicate the performance of the website,
then you should probably hold at least twenty stocks; preferably
thirty or more.
I HIGHLY recommend going to the
SUBSCRIBE
page on this website. If you read and understand the SUBSCRIBE
page and the two pages that are linked to it (Investing 501 &
Transaction Costs), then you will ultimately save a great deal of
time and money.
FAQ 6. Are stocks under $1.00 ever recommended?
No. However, a stock's price could fall below $1.00 after it has been chosen, but it will be included in the model portfolio simply because ALL recommended stocks are included in the model portfolio.
FAQ 7. Why are stocks occasionally held for more than 3 months?
Before 2005, they were held for three months, and then sold. That
meant cash was held if new stocks were not available to
replace the stocks that were sold. Now, they are only sold if new
picks are available to replace the old picks. That means the holding
period may sometimes be longer than three months.
The reason for holding stocks beyond the three-month holding
period is that my data show that WW picks, on average, out-perform
cash, AND they out-perform the market, especially if the market is
rising.
Some subscribers believe they can "Beat the System" by selling
before the three-month holding period expires. They can believe that
if they want, but their belief is not substantiated by my data. It
is true that occasionally a stock that is due to be sold will crash.
However, on average, the picks go on to out-perform the market for
considerably longer than three months. The reason they're sold is
that my data show the new picks will out-perform the old picks.
FAQ 8. Please tell me what you think of the "XYZ" Corp
A stock will sometimes capture the public’s attention. Think about
Enron, Tyco, GM, Chrysler, Google, or any of the other innumerable
companies that are experiencing their latest fifteen minutes of fame
or, more likely, infamy.
I am frequently asked what I “think about them”, meaning of course,
“Where are they going?”
I analyze individual stocks, but only to determine if they
meet my criteria. I buy and sell GROUPS of these stocks based on
criteria that I have developed over the last ten plus years. These
critical factors are constantly evaluated and are sometimes revised,
but I have never been able to predict which of the picks will
crash, and which will rise far beyond reasonable expectations. If it
were possible for me to separate the winners from the losers, then
I would NEVER give you a loser.
I do not perform a comprehensive analysis of individual stocks. I
have decided it is not worth the effort for two reasons:
1. I do not believe ANYONE can separate the winners from the losers
by performing an extensive or boundless analysis on individual
stocks, simply because there are too many known and unknown
variables that will affect future performance. “The more precisely
the position is determined, the less precisely the MOMENTUM is
known.” (Werner Heisenberg)
2. There is an emotional price to be paid when one focuses on
individual stocks i.e., if you look at them closely enough, you will
find there are literally hundreds (probably thousands) of opinions
about them. Some of the opinions are bound to be right and some of
them are gonna be wrong. The problem is that it is not possible to
separate wrong from right. That is frequently true of life in
general, and it is certainly true of stocks.
The bottom line is that if you make a buying or selling decision on
the basis of an opinion, then chances are that you are making an
emotional decision i.e., you are going to agree with whatever
opinion sounds good to you at that time. If you permit your emotions
to enter the equation, then my data show you are going to pay for
it. If you are asking for my advice, and if you want to make decisions
yourself, then here’s my advice:
1. Write your MEASURABLE objective on a piece of paper and refer to
it frequently.
2. Your objective can be anything you want it to be, but
if you asked about individual stocks, an appropriate objective could
be:
My objective is to analyze individual stocks so that I can separate
the winners from the losers before the fact.
Then develop a WRITTEN strategy to
achieve your objective. Number 2 is going to be incredibly
difficult, and it is going to consume a huge amount of time and
energy. If you are successful, then tell me about your success, and
I will tell you everything I know about the newsletter business
FAQ 9. Why limit the number of subscribers to fifty?
Fifty is an arbitrary number, but according to SEC rules, I have a responsibility not to influence the market with my recommendations. My newsletter is a Micro-Cap newsletter, and many Micro-Caps are thinly traded. So, I have to be reasonably sure that my subscribers can trade without too much difficulty, and I have to be reasonably sure my subscribers aren’t moving the market. I spent a considerable amount of time comparing the results of stocks I recommended to subscribers to a control group of stocks that were not recommended to subscribers, and I concluded that 60 subscribers a few years ago were not moving the market. I feel reasonably confident that 50 won’t move the market in the future.
FAQ 10. If you limit yourself to fifty subscribers, it is obvious that you do not make a great deal of money from your newsletter, so why do you do it?
I retired from my productive job a few years ago, so this is one way of staying active, and I generally enjoy it, especially during a rising market. A greater number of subscribers wouldn’t give me significantly more money or more pleasure. When the market cooperates, I make much, much more money trading than I could possibly make from my newsletter. If we are all very lucky, the market and the economy will cooperate for many more years. We'll see ...