Core fore portfolios information form word revised


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Core fore portfolios information form word revised

  1. 1. Core-Fore Portfolios Core-Fore PortfoliosExtreme Buy-and-Hold Investing 16 Companies 4 Micro, Small, Mid and Large Cap Stocks Zero TurnoverReduce Taxes / Fees / Poor Selling Decisions Will Ashworth Ashworth (416) 486-1441 / (905) 840-8484
  2. 2. Core-Fore PortfoliosWhat Is It?It’s extreme buy-and-hold investing.Stocks held permanently until taken private or losing 100% of its value. There’s virtually noturnover.How Does It Work?Investors construct 16-stock, fully diversified portfolios across many sectors and market caps.Each portfolio is comprised of four micro caps, small caps, mid caps and large caps.US Stocks - Market Cap Criteria Canadian Stocks – Market Cap CriteriaMicro Caps: $50 million to $300 million Micro Caps: $25 million to $150 millionSmall Caps: $300 million to $2 billion Small Caps: $150 million to $1 billionMid Caps: $2 billion to $10 billion Mid Caps: $1 billion to $5 billionLarge Caps: $10 billion or higher Large Caps: $5 billion or higherInvestors allocate an equal amount to all 16 stocks. The suggested minimum is $1,000 each.Any additional investments to the portfolio go to the four poorest performers from the previousyear. For example, if you invested $16,000 in 2010 and wanted to add $4,000 in 2011, you’dinvest $1,000 in each of the portfolio’s four worst performing stocks in 2010.On average, 3 to 4 stocks in every 100 cease trading each year. At most, the investor’s carefullyconstructed portfolio would require one replacement per year; it would be 8 to 10 years beforehalf the 16 stocks needed replacing.What Are The Costs?Stock-trading commissions and capital gains taxes are two of the biggest threats to investmentreturns. Core-Fore Portfolios aim to minimize these costs by reducing overall activity. Includingthe initial purchases and subsequent replacement of stocks no longer trading, investors shouldexpect trading commissions (based on $10 per trade) no more than $500 to $600 over eight yearswith minimal capital gains taxes. Portfolios that significantly outperform expectations mightrequire a return of capital, in which case additional trading commissions and capital gains taxesare applicable.
  3. 3. Core-Fore PortfoliosStock SelectionNo process is perfect. That’s why it’s crucial to do your homework prior to buying your 16stocks. Obviously, you want to own good companies but that doesn’t mean you shouldn’t takesome chances. Core Fore Portfolio One, for instance, holds Cray Inc. (Nasdaq:CRAY), the high-performance computing company. Cray’s barely making a profit yet I picked the micro-cap stockin my August 21, 2009, article. It’s yet to make money for the portfolio and that’s just fine.Core-Fore Portfolios are about teamwork. Like a good sports team, you never quite know whothe star performers will be on any given day, only that someone will step up to the plate. Craywill someday be that surprise performer when the portfolio likely needs it the most.Industry professionals recommend that investors remove all emotions from the buying andselling of stocks. In my experience, the only time emotion is absent from stock picking isgenerally when first buying shares of a company. Sure, we sometimes buy stocks because welike the product or service, but astute investors usually have also determined that the companymakes money and should continue to do so in the immediate future. Beyond this period, it’simpossible to know.The internet provides all sorts of rules for selling stocks. Here’s my favourite from analysts andmoney managers: “The company’s story and business has changed and our original reason for owningthe stock no longer exists.”This is an emotional response whereas the decision to buy in the first place was a critical thoughtfree of any bias. There are many examples where investors sold stocks too soon because oftemporarily bad news. A good company that falls on hard times doesn’t necessarily becomebankrupt overnight just as a bankrupt company doesn’t become a good one overnight.As for my own stock selection, I generally look for profitable companies with strong balancesheets and free cash flow. I have no cardinal rules, however, when picking stocks except that thebusiness-model makes sense. The rest usually takes care of itself.
  4. 4. Core-Fore PortfoliosFrequently Asked QuestionsWhy 16 StocksPortfolios between 10 and 20 stocks seem to do the best over extended periods. Because youpick four stocks (one from each cap) at a time, 16 makes the most sense, as it’s right in themiddle.What Happens When A Stock Is Taken Private Or Loses 100% Of Its ValueGenerally, three examples come into play.The first is when a company acquires your stock for cash. If you originally invested $1,000 andreceived $1,200 in the buyout, you’d reinvest the original $1,000 in another stock of the samemarket cap, even when the gain is substantial changing its market cap. Like a sports team, youwouldn’t replace a quarterback with a defensive lineman.The second example is when a company acquires your stock using its own shares. In thisinstance, you let it ride, much like the ING Corporate Leaders Trust, which got its start in 1935and today holds just 21 stocks, all descendents of the original 30 companies.The third example is when a stock loses 100% of its value. In this instance, either you invest$1,000 of cash in a new stock with the same market cap or you would sell a small amount fromthe remaining 15 stocks so that the weightings remain intact.It seems complicated but it’s not.How Do You Add Or Remove FundsIf you are adding funds, you should contribute once a year, an amount equal to 1/4 your initialinvestment. Therefore, if you invest $16,000 ($1,000 per stock) in a portfolio today, the next yearyou’ve saved $4,000, you’d add that amount and so on. If on the other hand, you needed funds,you’d sell a small amount of the four best performing stocks. This would trigger a small capitalgain. Naturally, if you don’t need to sell, you shouldn’t. The fewer moves the better.
  5. 5. Core-Fore PortfoliosWhat Happens When There’s Bad NewsThis is extreme buy-and-hold investing. Only under the three previous examples would you sell.What Happens When You Have A Ten-BaggerIn the event a stock achieves abnormally high returns, investors could realize profits byrebalancing the portfolio as described in the section previously about adding and removingfunds.For example, if you’ve invested $16,000 in 16 stocks and one of them increases 1,000% for apaper-profit of $10,000, you can realize this amount by selling a small portion of the four bestperforming stocks.Who Should Use Core-Fore PortfoliosInvestors who want better investment returns through reduced fees, lower taxes and fewer poorselling decisions. It’s passive-active investment management and at its core, Extreme Buy-and-Hold Investing.