Session 3 – Stock Analysis, Selection &                    Portfolio Design© 2012 Sigma Advantage Investments     www.sigm...
Determining the “Best” Stock    Investments     Utilize fundamental analysis & screening      techniques.     Looking fo...
Key Elements of a Stock Screen       • I utilize over 20 stock screens utilizing mainly         fundamental data.       • ...
Resources for Stock Screening Tools & Results       • AAII – American Association of Individual Investors                 ...
Fundamental Stock Analysis       - Stock Selection Guide       Created by         BetterInvesting, formerly the         Na...
Elements of the Stock Selection Guide       • Section 1                   • Visual Analysis of                     Sales, ...
Elements of the Stock Selection Guide       • Section 2 - Evaluating Management                   • Ten-Year Historical & ...
Elements of the Stock Selection Guide       • Section 3 – Price-Earnings History                   • 5-Year Historical P-E...
Elements of the Stock Selection Guide       • Section 4 – Evaluating Risk & Reward                   • Forecast Stock’s Hi...
Elements of the Stock Selection Guide       • Section 4 – Evaluating Risk & Reward                   • Determine Buy, Hold...
Portfolio Design    Equal allocation across all stocks usually provides the     best results.© 2012 Sigma Advantage Invest...
Portfolio Design    You can plan on the following results:            One out of five stocks will tank;            One out...
Portfolio Design    Reduce risk by     investing in 30-day     Treasury bills or a     mutual fund that     does (e.g. Per...
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The Secrets to Long Term Investing Success - Session 3

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Learn the secrets to long-term investing success! In this seminar series Bob Sloma, MBA, Principal of Sigma Advantage, shares the investing process he developed in the mid-nineties to manage his own and his wife’s retirement investments. His process has consistently beaten the S&P 500 return on a three, five and ten year basis, making changes only once a year, with between two-thirds and three-quarters of the market’s risk!

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Transcript of "The Secrets to Long Term Investing Success - Session 3"

  1. 1. Session 3 – Stock Analysis, Selection & Portfolio Design© 2012 Sigma Advantage Investments www.sigmadvantagellc.com
  2. 2. Determining the “Best” Stock Investments  Utilize fundamental analysis & screening techniques.  Looking for companies with Growth At a Reasonable Price (GARP).  Include data related to stock risk level in addition to long-term return data.  Put more weight on 3-year data verses 5 and 10 year data. Three year data falls within the typical 5-year business cycle.  The “best” investments may change within the business cycle.© 2012 Sigma Advantage Investments www.sigmadvantagellc.com 2
  3. 3. Key Elements of a Stock Screen • I utilize over 20 stock screens utilizing mainly fundamental data. • Key elements of the screens are*: • Earnings per Share (EPS) Growth >= 20% • Sales Growth >= 20% • Operating Margin / Income Increasing • Return on Equity / Assets >= 12% - 20% • Price – Earnings Ratio (PE) < 40 • PEG <= 1.5 • Look for increasing Cash Flow from Operations Year-Over-Year. *Ranked by # of occurrences of fields within screens.© 2012 Sigma Advantage Investments www.sigmadvantagellc.com 3
  4. 4. Resources for Stock Screening Tools & Results • AAII – American Association of Individual Investors • Annual membership available starting at $29 per year. • Monthly results for over 60 online stock screens. • Example: OShaughnessy Growth • Also have Stock Investor Pro screening software. • Morningstar.com • Basic Stock Screening Tool • Has several preset screens. • CNBC.com • Has several preset screens. • Allows user to create custom screens and save them.© 2012 Sigma Advantage Investments www.sigmadvantagellc.com 4
  5. 5. Fundamental Stock Analysis - Stock Selection Guide Created by BetterInvesting, formerly the National Association of Investors Corporation • Helps analyze and identify quality growth companies. • Helps determine whether the company’s stock is on sale.© 2012 Sigma Advantage Investments www.sigmadvantagellc.com 5
  6. 6. Elements of the Stock Selection Guide • Section 1 • Visual Analysis of Sales, Earnings and Price. • Historical and Estimated Future Sales Growth • Historical and Estimated Future Earnings Per Share Growth© 2012 Sigma Advantage Investments www.sigmadvantagellc.com 6
  7. 7. Elements of the Stock Selection Guide • Section 2 - Evaluating Management • Ten-Year Historical & Last 5-Year Average Pre-tax Profit • Ten-Year Historical & Last 5-Year Average % Earned on Equity (Return on Equity – ROE)© 2012 Sigma Advantage Investments www.sigmadvantagellc.com 7
  8. 8. Elements of the Stock Selection Guide • Section 3 – Price-Earnings History • 5-Year Historical P-E Ratio and Dividends • Building block for translating earnings into future prices.© 2012 Sigma Advantage Investments www.sigmadvantagellc.com 8
  9. 9. Elements of the Stock Selection Guide • Section 4 – Evaluating Risk & Reward • Forecast Stock’s High and Low Price Over the Next 5 Years. • Assumes one recession and one business recovery every 5 Years.© 2012 Sigma Advantage Investments www.sigmadvantagellc.com 9
  10. 10. Elements of the Stock Selection Guide • Section 4 – Evaluating Risk & Reward • Determine Buy, Hold and Sell Zones. • Determine Potential Gain vs. Potential Loss (Upside/Downside Ratio). • Calculate Potential Market Price Appreciation over the next 5 years.© 2012 Sigma Advantage Investments www.sigmadvantagellc.com 10
  11. 11. Portfolio Design Equal allocation across all stocks usually provides the best results.© 2012 Sigma Advantage Investments www.sigmadvantagellc.com 11
  12. 12. Portfolio Design You can plan on the following results: One out of five stocks will tank; One out of five stocks will be a home run; Three out of five will be quality performers (average).© 2012 Sigma Advantage Investments www.sigmadvantagellc.com 12
  13. 13. Portfolio Design Reduce risk by investing in 30-day Treasury bills or a mutual fund that does (e.g. Permanent Portfolio Treasury Bill (PRTBX)).© 2012 Sigma Advantage Investments www.sigmadvantagellc.com 13

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