All investments have a level of risk attached and that is particularly true of equities. Equities have two major risk factors – the risk inherent in an individual stock and overall market risk.
We mitigate the stock risk in two ways. First, our portfolios spread the stock risk among ten individual stocks which greatly reduces stock risk. Further, the stocks that are picked for our portfolios all have excellent fundamental attributes. Each stock is a blue chip stock with excellent earnings, sales growth and debt characteristics and is a performance leader within their stock group. These stocks are in the top 5% in terms of underlying company fundamentals and are therefore far far less likely to “tank” than the average stock pick.
First, some definitions are in order.
A technical market approach focuses on stock charts and the psychology involved between stock buyers and sellers.
A fundamental approach focuses on a stock’s balance sheet and performance characteristics, searching for stocks that are undervalued in comparison to their underlying value. For example – Warren Buffet uses predominantly a fundamental approach.
Our system uses both approaches. First, we filter all stocks based on very current technical data to give us a short list of stocks that appear ready for a significant immediate break-out. We then rank these finalists based on their company fundamentals. Only companies with exceptional fundamentals are considered.
What we’ve found is actually shocking. In our view over 90% of the stocks that have excellent looking charts actually have poor company fundamentals behind the scenes that don’t justify their stock price and growth. Just like in the Wizard of Oz, most have nothing special “behind the curtain”. We avoid these stocks “like the plague”. So the short answer is that we use both approaches, used within a highly defined selection system.
Our statistics over the years have led us to 110%. Our system is based on selecting and investing in stocks that have a high probability of jumping in price by 10% or more within the next 20 trading days. Our research revealed that while some continued on the grow to 120% or 130% or more, most peaked over 110% then fell back as current shareholders decided to take their profits and sell. In many cases stocks peaked just over 110% within a trading day only to fall back below the 110 mark before market close.
Our system tries to eliminate greed. We make high returns by rapidly turning over our portfolios and not by waiting to wring every ounce of profit out of an individual stock. We leave the really high stock returns for other investors and move on to a new portfolio.
Our choice of a 10% profit threshold is based on our research. In our view, increasing this threshold turns portfolios too slowly while reducing this threshold results in leaving too much profit on the table.
There are a great many factors to consider when comparing one company’s performance and balance sheet to another’s. We don’t concern ourselves with all of them.
We have developed our own proprietary list of 15 performance metrics associated with high growth stocks. Potential stock selections get scored on each of these metrics. A perfect score is just short of 1,000. We have yet to see a stock register a perfect score.
To be considered a stock will score at least 750. This technique allows us to rank all our picks, pick only the top ten and if necessary pass on stocks that score less than 750.
After our initial rankings, we filter finalists by two additional key growth indicators.
In the end our proprietary ranking techniques are effective is giving us the answers we want - 10 stocks with a high probability of advancing 10% or more in price near term.
Our 10 stock model for portfolios was a product of experimentation. We found that with a 10 stock portfolio we could often close out two stocks up 110% within 20 trading days. The problem was that try as we might we couldn’t determine which of the 10 would top out at 10%. The seemingly “best” stocks wouldn’t necessarily outperform the others in our portfolio.
Further, our 10 stock model gives us more diversification, protecting against downside risk. A stock that declines say 7% becomes only a .7% performance hit to the whole portfolio.
First, velocity is a key component to our investment model. The faster that we can turn over a portfolio the higher are our returns. Waiting for potential additional profits is an enemy of that velocity.
Second, potential further run-ups beyond 10% often do not materialize. In the ebb and flow of the market a 10% gain in the morning frequently turns into a 7% gain by closing. Our research indicates that this 10% profit threshold is optimum for our investment model.
Third, greed is the enemy of successful investing. You never go wrong by taking profits when you can and leaving additional potential profits for the next investor.
Finally, our stock selection system is geared toward finding those stocks that have a high probability of increasing 10% (as opposed to 20% or 30%). We stick to knitting.
You never really know when the next market correction will hit. We monitor certain key market indicators to warn us of the risk of a correction. When those risk indicators reach a threshold we send out a Red Alert to subscribers to sell the entire portfolio immediately. When the risk indicators indicate that the danger has receded because either – a) we have narrowly missed a correction or b) we have gone through the correction and come out the other-side, we issue a new buy signal to purchase a new portfolio.
The simple answer is no. First, returns are very market dependent. They can be very good is a strong market up trend. They can be acceptable in a sideways whipsaw type of market. But we exit the market when the “bear” appears. Our motto is to never fight the market.
Further, our statistics show that you should expect to be out of the market and in cash for 18% to 21% of the time. This is when the market is in correction and that affects your overall returns.
Don’t get me wrong, the returns are still very good but you must take these market exits into consideration.
The longest is always twenty trading days or approximately one month. This is the maximum that we will let a portfolio run. If twenty trading days has passed and we haven’t closed out two 10% stocks, we consider it stale and we close the portfolio and reselect. This doesn’t happen very often but it can happen.
The shortest can be two days or three days, in other-words a very short time period. These short sessions are usually found when the market is very buoyant. This is where the big returns are harvested!
The average portfolio length seems to gravitate to about thirteen trading days or a bit over two weeks. This average is very good news since that means that we are turning over portfolios almost twice a month. At that rate of almost four 110% stock in a month you can see how returns could potentially edge towards 50%!
The good news is that we’ll tell you all that you will need to know to operate our system successfully. Further, we will supply you with portfolio selections, 110% sell levels and market alerts coupled with portfolio instructions.
No special equipment is required beyond a basic computer system so you likely won’t have to buy much to operate our system.
Actually, you are free to utilize our picks, alerts and formula anyway you wish. But we don’t recommend straying from our overall system.
First, our system is meant to overcome two major reasons that investors fail to make money – greed and fear. Our system stays objective because it makes decisions strictly by the numbers. You don’t fall in love with a stock and hold it too long. We never buy a stock without a formula to tell us when to sell. Greed can’t take over and tempt us to hold too long.
Second, our picks are chosen specifically because they have characteristics found in stocks that are ready to make a near term advance of at least 10%. They are not necessarily a good long term hold.
That’s the long way of saying that we strongly recommend that you use only our stock picks within the short term trading strategy that we’ve devised.
To be honest, you don’t. But then no system can guarantee success because of constantly changing market conditions. What we can guarantee is that…
The quick answer is everyone. Novice investors love the fact that our system is turn-key. It includes everything that you need.
Expert investors appreciate the genius of our novel approach.
This option is usually available. If your 401k or RRSP plan allows the option, you can transfer some of your funds to a segregated self administered fund. You then can control the trades within the 401k/RRSP without collapsing the plan and incurring the tax liability. The stocks selected for IES portfolios all qualify for 401k/RRSP investing.
Originally, our system was set to exit a portfolio when two stocks closed out up 10%.
In order to close out portfolios faster and increase returns, we adopted an alternate exit strategy whereby a portfolio could also be closed out if it reached +3% at the end of a trading day. This strategy worked very well, but in volatile markets needed to be adjusted downward to +2.5%.