The following few paragraphs along with the
spreadsheet which can be accessed by clicking on the link below, are being
provided free of charge in my attempt to share what has so freely been shared
with me by the men and women with whom I have had the privilege of working with
over the years.
While in practice and now in retirement I have been
what some refer to as an active investor.
Not to be confused with a trader, but an active investor who is willing
to take a loss on an investment that is not working and move on to another with
brighter prospects. My personal
investment style most readily fits into the Growth-Momentum camp rather than
Value, Fundamental or other such descriptive term which serve to confuse more
than educate.
The Growth-Momentum investor is driven by the
objective of outperformance and is wed to returns rather than stories. Most fall into the groupings of Market
Technicians or Chartist. I personally am
neither, but I use the skill sets of both along with fundamental analysis.
At the end of last year I undertook the project of detailing
my process for stock picking and portfolio management which may be used by the
average investor in their quest for financial security.
Assuming that the reader has some familiarity with
investment terminology I will begin by explaining the first phase of my
process. Over the past twenty-five or so
years I have used virtually all forms data, including the print form of Investor’s
Business Daily (IBD). This daily
publication in my opinion is one of the finest and most user friendly sources
of financial information available.
My work depends upon the IBD etables which I
subscribe to on a month to month basis and for which I pay about $15.00 a
month. With this source I am able to
download into an Excel spreadsheet their proprietary lists which include in
excess of 500 names for me to sort and select from.
Using Excel’s Data Sorting powers I am able to
quickly reduce the number to between 150 and 200 working names which meet my criteria. While I personally use much of the data
provided in my screening work, an individual could easily create a handsome
investment pool using just the Industry Group SMR rating and the individual
company SmartSelect Comp ratings.
Whatever you chose make sure you understand the principals which IBD is
using in deriving the values to the various companies.
On to the next phase in which I employee tools and
reports which are furnished to me the brokerage firm which I have chosen to domicile
our accounts with, T. D. Ameritrade.
There are many firms from you may choose they are all very similar in
the services which they provide and the pricing is very competitive. In my case I chose T.D. Ameritrade because I
found their Service venue to be superior to others and extremely user
friendly. Since my family has begun to
trade through the T. D. Ameritrade the firm has continued to evolve and most
importantly it acquired a trading platform which is extremely robust,
ThinkorSwim. Along with the typical
services here I use the research materials which are either free or can be
subscribed to for a very reasonable monthly fee. In particular I have found the S&P
Capital IQ’s Five Stars report along with information gleaned from Market Edge
and First Call Most Recommended to be extreme valuable. My expenditures here amount to less than $30
a month.
By taking the lists from IBD and adding additional
ratings and analysis from the other sources I now have created in Excel a list
of investment targets with various grades alphabetical and numeric which I can
than sort and rank for my selection purposes.
Here, while in Excel I use a simple cell formula to create a scoring
process which ultimately produces my Bullish, Bearish or Neutral opinion.
My personal approach includes three different
trading strategies which are blended into a singular portfolio management
strategy.
First, a reasonable percentage of capital is
allocated to trading Options, the allocation is 20% of capital and may not be
fully invested depending upon overall market volatility. This activity focuses on a very small list of
names which includes a few Indices and a few selected stocks. Here trading volume and volatility are most
important.
The second tier of the portfolio pyramided is
allocated to the trading process initially described above and referred to as the
AlphaOne Model Portfolio which is allotted 30% of capital.
Profits from these two activities and the initial
50% of capital are invested in a Balanced Portfolio (Buy and Hold) ETF’s, 13 in
number and selected from the Vanguard Group of ETF’s and is referred to as the AlphaTwo Model Portfolio. This is a Buy and Hold portfolio which seeks
capital preservation with both dividend income and acceptable annual
returns. Here as with any investment we
monitor the portfolio and market conditions ever seeking to avoid market
declines such as those experienced in the 2000 – 2003 and 2008 – 2009 market cycles.
At this time it is important to say this information
is being provided to the reader, free of charge. Take from it what you will discard the
remainder, I hope that I have planted a small seed of curiosity in each of you
so that you might dig a little further into the free and inexpensive resources
which are available to you on the Internet and through your broker dealer of
choice.
This document provides only impersonal advice and
statistical data and is not intended to meet objectives or suitability
requirements of any specific account. Alpha for the Independent Investor
is a blog/newsletter which is published periodically, not requiring subscription
or compensation in any manner for the information provide. The publisher is not
compensated in any manner, financial or otherwise, by any third parties which
may from time to time be mentioned in the writings or examples.
Investing involves substantial risk. Neither the
publisher, the authors, nor any of their employees makes any guarantee or other
promise as to any results that may be obtained from using the Newsletter. The
advice and strategies contained herein may not be suitable for every situation.
While past performance may be analyzed in the Newsletter, past performance should
not be considered indicative of future performance. No subscriber or reader should
make any investment decision without first consulting his or her own personal
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The fact that an organization or Website is referred
to in the Newsletter as a citation and/or a potential source of further
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work may have changed or disappeared between when the Newsletter was written
and when it is read.
The Newsletter is not a solicitation or offer to buy
or sell any securities. The authors or members of their families may own the
securities which are the subject of the commentary, analysis, opinions, advice,
or recommendations in, or which are otherwise mentioned in, the Newsletter and
will make disclosures concerning their ownership of securities where relevant.
