Goals for the Student/Customer:
When examining how people invested their money, there are some weaknesses that are found in many portfolios. The main problems have been poor diversification and lack of stock analysis to determine if a stock is overvalued or undervalued. By combining portfolio management and stock analysis, the objective is to increase return, lower risk and take into consideration taxes consequences. The objective is to beat a simple combination of treasury bills (no risk) with an index fund (S&P 500 Index). The book can be downloaded for free and the investment letter will follow the book in its explanation of stock and portfolio makeup.

The S&P 500 is the main index used to measure professional managers. That index will be provided so you can measure your performance in the same manner as a professional money manager. Another index that will also be provided is the Value Line Index which has the 500 stocks of the S&P 500 and an additional 1200 stocks. This index most matches the philosophy of the material. The Value Line index is more diversified and will provide more returns over time through diversification.

The beginning step is to set up the portfolio, many studies have shown that the way that the portfolio is set up can represent about 90% of the return. Most individual investors do not have enough stocks in their portfolios and their portfolios are not diversified and tend to be in too few industries. Many investors will only invest in companies that are part of their occupation. Doctors will invest in medical stocks, engineers will invest only in technology stocks and programmers will only invest in software companies. This is a major mistake. The next problem is to invest only in the big winners of the previous year. The investor is coming in when this method of investing is at its peak. This is a major mistake investors make.

The next step to build a portfolio is to pick stocks based upon a set method of evaluation. To know when to buy and when to sell a stock is overlooked. There is a research showing that investors will sell their winners too soon and hold on to their losers. If investors invest based upon emotion going from periods of greed then to fear, the portfolio is going to under perform the indices. To be a successful investor, there needs to be a set of criteria stated ahead of time and emotional investing must be reduced.

With these objectives in mind, we will be developing portfolios that are disciplined in terms of portfolio makeup, stock selection, and the consideration of tax consequences. When you think about this, this makes common sense. For some reason common sense does not play into many personal portfolios, there are some elements of portfolio development which does not require rocket science but a guiding hand.

Scott Carter,
Publisher

Past Performance is not a guarantee of future results.