Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (22832)	12/25/2005 1:48:39 AM
From: bruwin	Read Replies (3) \| Respond to of 78745

After reading your reply 22832, it occurred to me how similar your strategy is to so many others one reads about on this Board and elsewhere. Don’t get me wrong. I’m not out to criticise or pontificate, but rather to debate, question and suggest. What you and others do with your investment capital, and the criteria you use, is entirely your own business. But when I read through many Messages on this Board of Value orientated investors, the common thread is often how many stocks they’ve purchased which have lost them money. Of course, they also purchased winners as well. Therefore the one question I thought folk would be asking themselves is "what is it about the stock selection criteria I’m using that doesn’t separate the potential losers from the potential winners ?" Because if one is going to use a particular modus operandi that seems to have flaws in it, then why continue to use it. Logically speaking, something about some of those criteria cannot be right. In your reply, you stated "If your portfolio is riding on only a handful stocks, the risk that you are incurring is pretty high." But the fact of the matter is, that the average of two of those stocks, HANS and PDX, was 54% (I’m ignoring BRY because it’s not a stock that would have passed the criteria I normally use. Personally I don’t usually invest in Resource based stocks or Banks). And that criteria is not my own, but is based on a stock evaluation method devised by my good friend Dr. Karl Posel. Very briefly it states ... 1)Don’t buy a stock if it doesn’t satisfy 8 specific criteria based on pertinent information contained in its Financial Statements. 2)Don’t buy a stock if it’s currently too expensive. 3)From those stocks that manage to satisfy (1) and (2) above, select those that show the greatest potential for price increase in the next 6 months. The end result of this approach is that one ends up with only a handful of QUALITY stocks compared with the generally accepted practice of large portfolios chosen, primarily, to reduce risk. But often the end result of the latter approach is the good performance of the minority of stocks are adversely affected by the poorer performance of the majority of lesser quality companies. It wouldn’t surprise me if you told me that about 10% of the stocks you bought in the last year really made you a good return, but your overall performance was marred by a fair portion of the other 90% which brought your averages down. And if you had to investigate the Financial Statements of those 10%, I’d be very surprised if what they contained did not at least satisfy (1) above. The fact of the matter is, that good companies that provide ongoing value for their shareholders (and a good dividend as well !), generally tend to meet or exceed specific criteria and ratios found within their Financial Statements. The converse is true for the potentially poorer performers. So, in our opinion, your risk for losing money is actually reduced by choosing companies that satisfy (1) to (3), compared to investing in a large portfolio because of the assumption that one’s losing positions will be diluted by your winning ones. Why not rather invest in fewer winning companies that reflect the properties of winning companies. I trust this Message will be received in the spirit in which it was intended.