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!

1. Session 3 – Stock Analysis, Selection &
Portfolio Design
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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.
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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.
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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: O'Shaughnessy 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.
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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.
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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
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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)
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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.
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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.
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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.
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11. Portfolio Design
Equal allocation across all stocks usually provides the
best results.
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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).
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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)).
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