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 we decided to lighten up because we were worried about market fundamentals. 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, after 2004 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. How are new purchase values determined?
New purchase values are determined by dividing the portfolio net worth by sixty.
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?
We have determined that there may be extreme return variability if a portfolio contains a small number of stocks so our goal is to give our 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, our 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 DESCRIPTION page on this website. If you read and understand this page, then you will ultimately save a great deal of time and money.
FAQ 6. Are stocks under $1.00 ever recommended?
No. However, a stocks price could fall below $1.00 after it has been chosen. We recommend that you ignore these stocks, but they will be included in the model portfolio simply because ALL recommended stocks are included in the audit of the model portfolio.
FAQ 7. Why do we occasionally hold stocks longer than 3 months?
Before 2005, we held them for three months, and then sold them. That meant we had to hold cash if new stocks were not available to replace the stocks that were sold. Now, we only sell them if new picks are available to replace the old picks. That means the holding period may sometimes be slightly more than three months. My guess is that future holding periods will be very close to a three-month holding period.
The reason for holding our stocks beyond the three-month holding period is that my data show that our stocks, 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, our picks go on to out-perform the market for considerably longer than three months. The reason we sell them is that our 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?”
Doug and I analyze individual stocks, but only to determine if they meet our criteria. We buy and sell GROUPS of these stocks based on criteria that we have developed over the last ten plus years. These critical factors are constantly evaluated and are sometimes revised, but we have never been able to predict which of our picks will crash, and which will rise far beyond reasonable expectations. If it were possible for us to separate the winners from the losers, then we would NEVER give you a loser.
We do not perform a comprehensive analysis of individual stocks. We have decided it is not worth the effort for two reasons:
1. We 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.
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.
Perhaps we can start a new newsletter...