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The object of this page is to provide a guide and an idea of the philosophy and course of action of the portfolio we are going to construct. It is a balanced portfolio and should give us all enough confidence to hold on to the selected stocks unless they no longer meet the reasons for having selected the particular investment.

 

What criteria will we adopt to select the stock out of an entire industry? This is the difficult part of the investment club since we want a stock that we will be happy holding long term. Determining if it’s a P/E, sales, profits forecasts, debt, products, and leadership criteria within the industry that is important in selecting great companies.  We will be voting on (3) stocks, a Large Cap, Mid Cap and a Small Cap, per industry as well as the index themselves and what has been the best mind in investment ever, Warren Buffet.  The individual stocks should be selected from the S&P 500 or the Nasdaq 100, the reasoning being that those companies will have met certain criteria to belong in those industries in the first place. There are no hard or fast rules but the club, as a whole will have a vote as to which stock will occupy a certain place in our portfolio. As you will see below, all industries and cross-indexes will be represented. The logic here is that we invest in them as we grow our holdings and diversify into all aspects of market possibilities. It is engineered in this fashion because we don’t know at this time which, industry, stock, or index will be ahead ten years from now, so betting in them all now, and putting market timing aside, we should have that best industry represented in our portfolio, and we will never have the need to switch philosophies.

 

               A question to be addressed is: what to do and how to carry out on a monthly basis the research and evaluation of our investments. It is the founder’s idea that each Members or Groups of Members embrace an industry to cover, thereby addressing one industry per month. The Member (s) covering the industry will present their facts to the club. It will be the president’s duty to oversee and aid the Industry Group of Members and assure that everyone is sharing in his or her responsibilities. The following table is a likely scenario for investing in one industry at a time as well as for investing in one “level” before moving down toward MID CAP and SMALL CAPS.  In this example we’ll assume that LARGE CAP are companies greater than 20 billion, a MID CAP one between 2 and 20 Billion and finally a SMALL CAP is one under 2 billion.

 

As for when will we sell any of these stocks is concerned, we intend on re-visiting  (Industry Group Members) the holdings at a years time or cycle for that matter and seeing if they still fit with the reasons we acknowledged at the time we bought them (This is an effect what the S&P does when they elect to include or exclude a stock in the index). At that time we can:

(a)   Continue to dollar cost into the stock

(b)   Leave that holding alone and invest future money in a different company within the same industry or

(c)   We can sell the holding and move on to a more appealing company if we so decide.

 

Can a stock be brought up in an emergency type situation? Yes, if for any reason important fundamentals are changing causing to examine the stock in such haste.

 

There is yet another question to be answered, namely, how to go about investing in the companies we have selected in each industry.

 

Suggested Procedure:

 

From the day we know which companies will represent each level (LARGE CAP first) we can track their performance relative to one another, and since we are going to own them all down the road, we can jump on the one that is moving higher, followed the next month by the one that is down the most, then on the third month (depending on the cash we collect) we can repeat this unbiased method of deciding which one to own next.  This mechanical procedure should free the Members of the trouble of having to make the decision thereby putting to rest any emotional reasons that would present hesitation each month.  We can use the time we save and get on to other business.

 

            The logic for investing in the stock that is moving is to capture that stock for the long term early enough in the cycle to benefit if it will become a success story. The logic for investing in the one that is down the most is a measure to buy more shares of a stock we will own in the event that the trend will turnaround for the biggest looser at that time. Don’t confuse these ideas with market-timing, this is just an idea to free us from having to decide which stock to buy next, and try to arbitrate the risk of missing on share that will never be seen at that price again, or missing out on stretching our dollars picking up the beaten up stock.  I did run some trials and discovered that using both methods as opposed to buying the prevailing under performer or the prevailing best performing one, can arbitrate any risk of under performing the broad markets.

 

 

 

 

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