PRESENTATION
AAII Rochester, New York
November 2, 2005
Growth and Momentum Investing
by Doug Weimer and Henry Wirth

The text that follows is a presentation we made to the Rochester, New York Chapter of the American Association if Individual Investors (AAII). To learn more about the Rochester, New York chapter, please visit their website at AAIIRochester.com This website is currently under construction, but a great deal of information is currently available about chapter activities and two Special Interest Groups (SIGs). Enjoy your visit.

INTRODUCTION
by Rowland Billy

Doug Weimer and Henry Wirth have had no formal financial training but each has been investing successfully for more than 25 years. They posted a model portfolio on the World Wide Web as part of an AAII Rochester NY Special Interest Group (SIG) exercise more than four years ago and they began e-mailing their stock selections to their subscribers several years ago. During the four plus years this portfolio has been on the World Wide Web, it out-performed the NASDAQ 100 by more than 260%. This year, through September 23, 2005, the NASDAQ 100 was DOWN 2.9% but Doug and Henry were up 17.1%. During the meeting, Doug and Henry will amuse you with tales of the financial newsletter business and they will discuss the risks and rewards of growth and momentum investing.

Doug Weimer retired from teaching twelve years ago. Since that time he has studied stock market probabilities so that he can afford some of life's pleasures. He, his wife and five-year-old daughter live in their Florida home with his boats in the winter. In the summer they live in their home on Lake Ontario.

Henry Wirth, alas, is still toiling away at a large Rochester company that is rapidly re-inventing itself as a small Rochester company. Henry will now give you their agenda for tonight.

INTRODUCTION AND AGENDA
by Henry Wirth

Doug and I are very happy to be here tonight, because we enjoyed ourselves immensely two years ago. The AAII Rochester Chapter was a great audience.

I'm also very happy to be able to report that Doug and I are still out-performing our benchmark by substantial margins. During the spring of this year Mary Lynn Vickers and I were discussing the agenda for this meeting. You may recall that at that time the market was going through one of its rough patches. I was concerned that we were going to have to call this presentation "The Triumph of the Indices". Happily that is not the case.

Doug and I have an interesting program for you tonight. We are going to tell you a bit more, about our evolving version of growth and momentum investing and we are going to tell you, what we have learned about the financial newsletter business.

We will try to answer any questions but we ask that you hold them ‘til the end of our presentation. If we run out of time before your questions are answered then I urge you to visit our website. Its address is on the handouts that you will be given. Among other things the website contains a four thousand word essay titled, “Growth and Momentum Investing: The Good, the Bad, and the Ugly”. It addresses questions about taxes, risk, transaction costs, and anything else I have ever been asked about Growth and Momentum investing.

One of the more important things to remember is, that it is EXTREMELY difficult to beat the market over time, but it can be done. In fact, according to The Hulbert Financial Digest, about twenty percent of all newsletters beat the market. That was true twenty years ago when The Hulbert Financial Digest was five years old and it is true today.

I'll tell you some more later. Right now, Doug will give you a brief history of our version of Growth and Momentum investing and the first set of handouts will be distributed.

A BRIEF HISTORY OF OUR SYSTEM
by Doug Weimer

As Henry has pointed out beating the market is hard to do, but it can be done. That’s what I believed when I started looking for ways to beat the market when I retired in 1993. This is where the system began.

At that time I tested numerous quantitative algorithms of stocks and their price movement. That means that I looked at and audited the price movements of hundreds of stocks using PE, relative strength, or price/sales ratios combined with price and volume changes in the stocks themselves.  I put together a multifactor formula and the present system is based on that formula.

Henry and I had been friends for some time, biking together and going to some of the same parties. In 1998 I told him I was beating the market quite regularly. He said, “Prove it.”

He began a web site where he offered to anybody and everybody the chance to have their stock picking audited in public. I gave him the stocks regularly. He logged their prices in and logged them out three months later. By 2001 he was convinced that an investor could beat the market regularly using a formula. He has been auditing returns of system stocks since that time.

In November of 2003 we gave our first talk to AAII. At that time we began emailing our stock selections to many of those who attended the last talk.  Since that talk two years ago our stocks have gone up 54%. At the same time the S&P 500 has gone up 10%.

But could you actually make those gains that the web site made. After all that’s a paper portfolio.  One investor followed them for a while and saw they were making good returns. Then in February of 2004, a little more than a year and a half ago, he invested $100,000 in system stocks. By September of this year that 100,000 had turned into $154,000.  If he had just followed the S&P 500 averages, his 100,000 would have been $110,000 in September. I give September because that’s when I asked for reports of how our investors were doing.

Another investor followed them in paper portfolios for a while, and then he started investing in them. His gain was higher than the paper portfolio and higher than anybody elses. He made an amazing 65% in that one-year.  I asked him how did he choose his stocks among the system picks that were sent out.  He said that he had a small amount of money; I think it was around 16 thousand so he picked the lowest priced stocks so that he could buy in bigger numbers. I checked our stocks over the past year and year before and, sure enough, the lowest priced stocks made the biggest gains.

Does that mean that you should always buy the lowest priced stocks? No. They are also the most volatile. They’ll go up a lot in good times, but in bad times they also lose more money.

Anyway back to the original topic – beating the market. The system goes back to 1994. It has been outperforming for eleven years.  It has proved itself through the boom years of the nineties as well as the bust years of 2000 through 2002.

I’m often asked if the system will continue to outperform. I don’t know. If the past is any indication of the future, it will continue to do well.

Henry will now talk about the Newsletter Business

NEWSLETTER BUSINESS
by Henry Wirth

 

Some of you may be old enough to remember, "Bringing up Father", but you probably don't know that the SEC was closely watching the smoke rising from the strip's cigars in 1947.

The eighty-three year old proprietor of the Goldsmith Financial Service admitted that the "inside information" he claimed to possess was largely derived from studying "Bringing up Father". Goldsmith said the strip contained encoded information about the market. When a character's cigar was drawn with two puffs of smoke the market would go up in the second hour … and so on.

The ever-vigilant Securities and Exchange Commission found out about this and tried to put him out of business. But Goldsmith had been publishing his letter since 1916 and was able to submit in his defense many testimonials from satisfied clients including several Wall Street professionals. After an expensive trial the SEC prevailed and was able to make the investment world a safer place for consumers of financial newsletters.

One question that you may be asking yourself is: "If people really knew how to beat the market they wouldn’t sell the secret in a newsletter for a few hundred bucks, would they?"

Peter Brimelow, who wrote a book about the financial newsletter business that was published twenty years ago said: “Yes they would, for reasons that will become clear in the book.”

There are many examples in the book and Al Frank was one of them. Al Frank had been publishing The Prudent Speculator for five years and in 1983 his circulation was a magnificent seventy-five. He wasn't getting rich from publishing his newsletter, but he was having fun.

In 1983, The Hulbert Financial Digest started monitoring The Prudent Speculator. That year he headed Hulbert's hit parade with a seventy-two percent gain. That attracted a ton of publicity and he acquired two thousand more subscribers.

The rest is history: Twenty-five years later The Prudent Speculator had the highest total return of all the newsletters The Hulbert Financial Digest had been monitoring.

You may be asking yourself if you should subscribe to The Prudent Speculator.

If you go to their website you will see that The Prudent Speculator can be yours for $295 a year. And that's a special deal that’s only offered twelve months a year. However, the website does NOT tell you that the man responsible for all this out-performance is dead. You can buy the legend, but you cannot buy the man responsible for it.

Another important piece of information missing from the website is the fact that Al Frank's portfolio was heavily margined. In fact, according to the Hulbert Financial Digest, if The Prudent Speculator, had not used margin then its portfolio would have simply equaled the return of the stock market.

In spite of the fact that Al Frank died more than three years ago The Prudent Speculator continues to do well. The question you are all probably asking right now is:

How, does Weimer and Wirth compare to the newsletter that The Hulbert Financial Digest calls the Number One ranked investment newsletter for the past twenty-five years?

YEAR	Weimer Wirth	Prudent Speculator Average Note 1	NASDAQ 100 QQQQ
2005 to 10-14	15.20%	3.70%	-3.40%
2004	29.60%	24.30%	10.50%
2003	103.80%	91.50%	49.60%
2002	8.80%	-27.10%	-37.40%

Weimer and Wirth beat The Prudent Speculator, 2005 Year to Date, 2004, 2003, and 2002.

During 2002, the NASDAQ 100 lost 37.4%, but we managed an 8.8% gain while The Prudent Speculator LOST 27%. Our history does not go beyond 2002.

There are many other financial newsletter stories in Peter Brimelow's The Wall Street Gurus but my time is running out. The book can be borrowed from the library or it can purchased used at Amazon for less than five dollars. It is a good read.

Doug will now talk about how our Growth and Momentum System should be used.

HOW TO USE THE SYSTEM
by Doug Weimer

We send out approximately 60 stocks every three months. That’s a lot of stocks to start buying, especially if in the past you had picked a few stocks and then hung on for years. Besides, isn’t that what the gurus tell you to do, buy and hold?  If you trade a lot, trading costs will eat you alive they tell you.  Traders die broke was another old expression.

Our system goes against many of those old conventions. We buy our stocks when they pass all our filters. We sell them three months later. We have become stock traders. Henry and I were talking about that the other day, how sleazy it sounds, almost like day trading, which is almost like casino gambling. It doesn’t sound like real investing. But what we’ve found is that this kind of investing works. We make high returns doing it. And we think others can produce the same kind of returns following this formula.

What do you need to do to make these kinds of returns? Simple. Sign up for the emailed picks. Buy at least 20 of them every quarter. Sell them three months later. Always use a discount broker.  Easy.

But if it’s so easy, how come all our subscribers aren’t making huge gains? Good question. Now we come to the human side of the equation. We have a lot of fears mixed in with a lot of greed. We’re human beings.

What typically happens is that an investor hears about all the money we’re making and he wants to try it. So he does. He gets the stock selections, and then he follows them in paper portfolios. He sees that it’s true; they are making big returns. He starts investing in them, and, of course, what happens? The market tanks. But maybe it’s only temporary. So he hangs in there for a huge amount of time, meaning two more months. And the market is still dropping. He’s losing money and can’t sleep at nights. Then another month of down sliding and, finally, he says I’ve gotta put a stop to this so he sells. And then what happens. He stops looking at the market and at some point it turns around, maybe slowly, maybe with a leap, but it does turn around. This is when our stocks shine. When the market moves up a little, our stocks move up a lot. It’s true when the market moves up MOST stocks move up, but for some reason our stocks become true superheroes, flying well over the heads of the other stocks. And they should. They have a lot going for them.

Our stocks have been chosen for a variety of reasons. All of these reasons are built into the stocks we send out. For one, stocks go up because earnings go up. Our stocks are chosen because they have just experienced a big increase in earnings. At the same time, their revenue, their total sales, are going up.  Then, too, the latest earnings report was better than expected. The price of a stock is based on what it was expected to earn. All of a sudden, this company comes out with a report that their earnings are quite a bit higher than expected. Buyers flock in to buy this company that is doing a lot better than they had thought. Stocks tend to go up when they move up on higher volume, which means their earnings are getting noticed and that more and more buyers are jumping in.  This produces upward momentum, which is also a big factor in why stocks go up. They go up because they had been going up. Numerous studies have shown that. Stocks that move up tend to continue moving up.

Then too our stocks at this time are the smallest of the small caps. What this means is if you get a little bit of buying in a stock that has very few shares of stock out there, it tends to move up. And sometimes this move up makes it double or triple in a three-month period.

So system stocks should go up because all the right things are happening to them, but it doesn’t always happen that way and because we’re thinking humans with emotions, we sometimes find it difficult to follow the formula.

Now back to our hero who tried the system and failed to make it work. This, by the way, is a true story.  I hadn’t heard from our investor in some time. Then we started charging for our service and this investor didn’t sign up. Of course, why should he?  He tried it. It didn’t work.

Then some time in July or August I got a call. “Douglas, can I still buy in at the reduced price?”  We were a few days past the time we said we were going to charge $129 a year.

“I’ll have to ask Henry,” I said, “But why did you change your mind? I thought you had a bad experience with our picks.”

“I did,” he said, “but I loaded some of them in a Yahoo portfolio before I went away, and then we came back a month and a half later. I took a look at them just for fun and I was amazed.  Gee, they were up more than I made in the past five years.

And it was true. That was the group of picks in May of this year. If you had done nothing else but bought the 29 stocks that were sent out in May, and then sold them three months later in August, you would have made 48%. That’s a huge gain that would make any investor happy for five years. And yet this all happened in a three-month period.

Of course, it’s also true that our stocks lost money from January through April. And this bad period is what threw a lot of us off the system. What we have learned again and again is that we have to buy like a machine and sell like a machine. And if we do that we’ll make huge returns. The payoff in the good periods will far surpass the losses in the bad periods. It’s not easy to do though because, after all, we are human beings. We are yanked around by our emotions.

Henry will now talk about return variability.

RETURN VARIABILITY
by Henry Wirth

A detailed portfolio report is e-mailed to our subscribers every week. This report is essentially an audit, of all the stocks that are e-mailed to our subscribers. The report keeps us honest, by making it impossible to lie about the returns that we report, AND it provides our subscribers, with a record, to which they can refer.

In spite of our honesty, there are sometimes ENORMOUS differences between the returns we report, and between returns that some subscribers experience.

Normally sixty stocks are recommended every quarter. If all the recommended stocks were purchased then the reported returns and the returns experienced by subscribers would probably correlate reasonably well. However, many subscribers do not buy all the recommended stocks. So, the question is: If fewer than the recommended number of stocks are purchased then what return could you reasonably expect? The answer is, that it depends on the number of stocks you buy and it depends on how lucky or smart you are.

I examined all the stocks that were sold during the quarter ending September 30, 2005. Normally sixty are sold, but this quarter was unusual because only fifty-two were sold. The best performing stock gained 262% and the worst performing stock lost 28%. Not too many people buy only one stock, but believe it or not, some people do. Those who bought the winner tend to think Doug and I should be sitting at the top of a mountain; those who bought the loser tend to think we should be sent somewhere else.

But what about the typical subscriber who bought a significant number of stocks? Are five or ten enough to get an average return? If not, then how many would you have to buy to get an average return?

I programmed my faithful computer to generate one thousand random samples of groups of one thru fifty stocks to find the answer to that question.

I mentioned earlier that the best performing stock gained 262% and the worst performing stock lost 28%. There is a very small chance of getting either the winner or the loser, but what return could you reasonably expect if you bought five stocks?

If you only bought five stocks, you could reasonably expect to gain between 5% and 46%. The chance of realizing either result is equal. A comprehensive explanation is on the website.

BUY 5
25.5% AVERAGE 3 Month Return
for ALL Stocks Sold during the Third Quarter of 2005



BUY 5
46% MAX GAIN versus 5% MIN GAIN

The MAX limit above was determined by adding one standard deviation to the average and the MIN limit above was found by subtracting one standard deviation from the average. That means that MOST of the time the limits will NOT be exceeded, but about 30% of the time, these limits will be exceeded. Details are on WEIMERandWIRTH.com

Note that the 25.5%, average THREE-MONTH return, is for stocks that were sold during the third quarter of this year. That’s equivalent to an ANNUALIZED yield of almost 150%, but the third quarter was an unusually good quarter.

The average THREE-MONTH return of all stocks that were sold since we started after June 2001, was 10.9%. Sometimes we do better than that and sometimes we do worse than that.

If you bought twenty stocks you can see that the return variability is considerably reduced but it is still significant.

BUY 20
25.5% AVERAGE 3 Month Return
for ALL Stocks Sold during the Third Quarter of 2005

BUY 20
34% MAX GAIN versus 17% MIN GAIN

The MAX limit above was determined by adding one standard deviation to the average and the MIN limit above was found by subtracting one standard deviation from the average. That means that MOST of the time the limits will NOT be exceeded, but about 30% of the time, these limits will be exceeded. Details are on WEIMERandWIRTH.com

The chart below shows the big picture. It was compiled from several quarters of data. The upper curve represents the upper DEVIATION FROM THE AVERAGE RETURN LIMITS and the lower curve represents the lower DEVIATION FROM THE AVERAGE RETURN LIMITS. You can see that buying fewer than twenty stocks exposes you to an ENORMOUS variability range. If you buy more than twenty, then the variability range is significantly reduced.



The average THREE-MONTH return of all stocks that were sold since we started after June 2001 was 10.9%. The chart above shows the DEVIATION FROM THE AVERAGE RETURN.

The MAX limits above were determined by adding one standard deviation to the average and the MIN limits above were found by subtracting one standard deviation from the average. That means that MOST of the time the limits will NOT be exceeded, but about 30% of the time, these limits will be exceeded. For a comprehensive explanation of a standard deviation, Google standard deviation.

Doug will now talk about risk.

RISK
by Doug Weimer

One of the most frequent questions I get is what do I do to avoid losses. Now, I don’t do anything. I used to set stop losses or set mental stop losses, or draw lines on a chart. If the stock crossed over the lines on the chart or over the fifty-day following average, I would sell. I tried all those methods, but what I found worked best was just letting them go.

Several things limit your risk if you follow the system the way it should be followed. One is that you are your own mutual fund. You’re buying a basket of 20 or 30 stocks, maybe more, each quarter. If one or two crashes it’s not a big deal. You probably have one or two making big gains to counterbalance the losses.

The other factor limiting losses is that you will not stay in any stock more than three months. It takes most stocks many more months than that to descend into the point of no return. Then, too, our stocks are never into negative earnings or performing cash-burn management techniques. This point alone makes it extremely unlikely that our stocks will go bankrupt.

The trouble with stop loss orders is that frequently the stock drops to the price you have set to sell the stock, and it gets sold automatically. This drop in price could be a temporary spike downward, and the stock then jumps up from that price. In trying to protect your gains, you have actually increased your losses. It’s then quite possible that three weeks later it will be even higher than you paid for it. This produces teeth gnashing anguish, which is a price you shouldn’t have to pay.  Other times we get a calamitous event, terrorist attack or Asian currency readjustment, and the market spikes downward only to recover in the next few weeks. Your positions are stopped out at the worst of times. In trying to avoid risk, you have created a situation that has produced more loss.

It is a fear of losses that causes most people to lose a lot of money that they should be making. Let me explain. We here are accumulators, people who practice a great many money saving techniques, which allow us to put money away. We have money to invest. Because we spend so much time accumulating, we are extremely careful with our money. Nobody likes to see their brokerage accounts go down. But investors vary in the amount of risk they take.

Some money hoarders keep their money in hiding places because they don’t trust banks. Others keep their money in CD’s (Certificates of Deposit), which typically provide a low rate of return. They do this because they’ve heard that stocks could lose you much of your hard-earned assets. Another friend told me he’d never buy NASDAQ stocks. He would only buy stocks on the New York Stock Exchange. Of those mentioned you would say they would be quite conservative with their assets and are likely to lose very little money. You’d be wrong.

Their fears cost them considerably in money they’d make if they put it to work in riskier ways. It would be nice to say that you could put your money in the stock market and it would gain at the rate of 10% a year, year in and year out. Some years your money will go down. You’ll actually lose money. Other years you’ll make big gains, leaps maybe of twenty or thirty percent. But in the long run, the likelihood based on the past repeating itself in the future, is that you’ll make about 10% a year investing in securities.

Let’s say somebody puts 100 thousand in CD’s and the average rate of return is 4% over the next ten years.   Let’s say another person puts his 100 thousand in the stock market and his average rate of return is 10% over the next ten years. And a third person heard of the Weimer and Wirth Rapid Grow system of producing high returns, he puts his 100 thousand in WW stocks and makes a return of 20% a year. At the end of the ten years the cautious CD investor has $148,000 for his efforts. The stock market investor has done much better; he has $259,000 for taking some risk and putting his money in harm’s way. The third investor has a total return of $619,000 at the end of ten years. Not bad. Almost a half million more for taking the right kind of risks. He put his money at risk using a strategy that he saw had good reason to work. And it did. He got paid for his risk. At times the WW investor lost money; at other times he made money. He paid with his worry and concern during the times when his stocks didn’t make money. But in the end, he was rewarded for his risks.

The point of all this is that you can be too conservative with your assets. You can lose big by not taking reasonable risks. And in the long run that can cost you a lot of money.

Henry will now talk about “Beating the Market”

HOW to BEAT the MARKET
by Henry Wirth

Everyone here probably knows, there are three important factors, that determine the value of real estate:

LOCATION

LOCATION

LOCATION

Mark Hulbert's September 2005, AAII Journal article, reiterates the fact that it is EXTREMELY difficult to beat the market. Hulbert then examines what has worked, and what has not worked, for newsletters over the last twenty-five years.

Hulbert's conclusion was that almost any investing strategy will beat the market. Think about that for a moment. If almost any investment strategy will beat the market then why is it that only ONE out of FIVE investors beat the market? That's right, ONE out of FIVE are gonna beat the market. FOUR out of FIVE are gonna fail, and some are gonna fail miserably. That's true of the professionals that edit newsletters, it is true of the professionals that manage mutual funds, and it is true of individual investors.

According to Hulbert, the three magic factors required to beat the market are:

DISCIPLINE

DISCIPLINE

DISCIPLINE

If you have discipline, then you can make value investing, growth investing, momentum investing, or any of the other innumerable investing strategies work. If you don't have investing discipline, then no investing strategy will work.

You also need patience. You need patience to learn about the strategy you are going to implement and you need patience to get you through the periods during which your strategy is not going to work. Remember, when it comes to the stock market, most strategies work some of the time, but no single strategy works all the time.

Is the Growth and Momentum strategy Doug and I have developed going to work for you?

That depends on your patience and discipline.

I will confess that buying and selling sixty stocks every quarter is not my idea of a good time. That's four hundred eighty transactions every year.

I would much rather be a value investor. Someone like Benjamin Graham. In 1948, Graham put $720,000, which was 25% of his portfolio, into GEICO. By 1975 the value received from that investment had passed half a billion dollars! That's an annualized return of more than 27%.

That's what I wannabe: A twenty-seven percent per year, buy and hold, value investor.

At the end of his life, Ben offered this: One lucky break may count for more than a lifetime of effort.

Buying and selling sixty stocks each quarter is not something to which we humans have been conditioned. Even so, it is a relatively easy thing to do when the day-to-day, or week-to-week, net worth of your portfolio is increasing. Almost everyone wants to shovel money into the market when there is exuberance, especially if it's the irrational kind. I have learned that is generally a good time to take some profits.

The real question is: Are you going to have the intestinal fortitude to continue buying after your portfolio's net worth has fallen month after month, or even worse, year after year?

Those are the periods during which I wish I had never heard of Growth and Momentum investing. There were some periods during the last ten years during which I wished I had never heard of the stock market. But those are the absolute best times to buy, because NOBODY else wants to buy either, so things are cheap.

You need three things to beat the market:

DISCIPLINE, PATIENCE, and…MONEY.

You can't do it without money. Always keep some powder dry!

Doug will now talk about the system audit.

DON’T BELIEVE US: THE AUDIT
by Doug Weimer

We are skeptics, Henry and I. We don’t believe most of the hype out there pushing one or another fast-growing stock. So we don’t expect you to believe us either. Why should you? You can look at any investment publication and find dozens of hypesters claiming to get huge returns. But do they? Don’t believe them. Don’t believe us.

Because we didn’t believe other stock touters, Henry and I tested. When I said I was getting market-beating returns seven years ago.  Henry said, “Prove it. Send me the stocks and we’ll put them in spread sheets and compare them with an index, and we’ll see if you really are beating the market.” And Henry tested the returns quarter after quarter for several years before he started putting own his money into it. I too did the same. Though I developed the beginnings of the system twelve years ago, I didn’t believe that just a set of numbers could outperform repeatedly, and at first I invested in other stocks.  Then I started trusting the numbers and started investing more and more of my money in them. So we say the same thing to you, “Don’t believe us.”

We provide an audit of all the stocks we send our subscribers. The first market day after the subscribers get the stocks we enter the price in the audit. All who receive the stock picks can get the same price that the audit gets. The price entered for each stock is the average of the high price and the low price for the stock for that day. For example if the stock is sent out as a buy, and that day it hits a low of 3.00 and a high of 3.20. The price entered in the audit is $3.10, which is right in the middle of the high, and the low of that stock for that day. Our audit keeps the stock for three months and then it’s sold. No smoke and mirrors. It’s simple and clear and very mechanical. Once a week Henry sends out the results of the WW portfolio, and the return shown for the portfolio is the return we all should be getting.

I know of no other stock touters who provide a statistically rigorous follow up of their stocks as our audit does. We also say, check the audit with your own test. Load stocks in Yahoo portfolios so that you can see how system stocks are doing daily. This too, is quite simple and it requires very little time.

HOW TO CREATE A YAHOO PORTFOLIO

1. Go to yahoo.com

2. Go to Yahoo Finance (Upper Left Side)

3. Go to Portfolios, click on Create

4. Click on Track Your Current Holdings

5. Give the portfolio a name, e.g. OCT05

6. Enter symbols in the box labeled Symbols

7. Click on continue (Lower right corner)

8. Enter the total number of Shares purchased. Purchases should be equally weighted. I make all transactions in $1,000 amounts. To do this divide 1,000 by the price of the stock and you get the number of shares to enter. For example if the price is $5.00, you divide 1,000 by 5, which gives you 200 shares.

Simple. Now you can check your portfolio anytime to determine if you are happy or sad.

Another reason to create your own portfolio is that you can check any theories that you might have. If you believe that the low P/E stocks of our picks outperform the high P/E stocks, you could load your own portfolio with low P/E, and find out which ones really do outperform.

Why should you go to the time and trouble of creating a paper portfolio? For a lot of reasons. One is that you shouldn’t believe us, or anybody out there in the field of investments. Most of us remember the Beardstown ladies. These are the nice little old ladies who formed an investment club and who claimed they were making huge returns. They became famous, entered the talk circuit, and wrote a book that sold quite well. Nobody checked on their actual returns for some time. Then somebody did check and it was discovered that it was all a big sham. Their returns were nowhere near what they represented them to be.  We say don’t believe us; don’t believe them, check with your own portfolios.

Next we will try to answer any questions you may have.

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