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Ranking Stocks
I have been tracking value & growth stocks for over 20 years, and to this day I am still amazed by the process. What amazes me is the predictability of events like corrections. After all, a stock correction on Wall Street is not a rare event, yet when it happens, investors react as if the end of the world is truly coming. AAPL, MSFT, GOOG, RIMM, INTC,  AMZN, ADBE, CMG, CRM are all great companies, but sooner or later they all correct. That is the exact time you should be buying them. The question we face, though, is how to control our risk if the correction is greater than we anticipate?
 

Is a good PE ratio, a sufficient enough criteria when one considers an entry point?  After all, any stock, at least in theory, has a 50/50 Risk/Reward ratio as it can go either UP or DOWN.

Let's think this through a bit further.
Suppose you were an insurance company and were asked to assess a life insurance premium on a person. To an individual who is not familiar with the insurance industry, this may at first look like a 50/50 proposition. After all, the chances that a person will either live or die within the next 30 years are theoretically 50/50, so why would an insurance company undertake such an enormous risk? 

Obviously, folks in the insurance industry have other factors which they use to assess their clients' health and protect themselves. A person's age, physical health, current illnesses, lifestyle, location and many other factors, when summed up mathematically, will result in a volatility number for each person.  

A 48-year-old American male executive, who travels extensively, smokes, has high blood pressure, and is under stress will most likely have a very high volatility number. This very same number, when applied mathematically to this executive's age (Entry Point) will fairly accurately predict X, a chance of a catastrophic event within the near future.  

Now, compare this beautiful logic that insurance companies use to how you normally go about buying stocks and ask yourself the following:
A. Statistically speaking, great research alone will amount to a 50/50 proposition. How do you protect yourself if your stock continues to drop?
B. Do you have your stock's volatility number? What factors would you use to calculate the volatility number for your stock to determine your entry point?
C. How much money should you risk on this one stock? How would you assess your initial position size?


For more than 20 years, the GetFolio Ranking System has
accurately anticipated stocks' subsequent relative price performance. The Ranking System screens thousands of stocks, and Indices, and mathematically builds a great portfolio with excellent long term results. This Ranking System is the basis for the GetFolio recommendations, and is a central component of the GetFolio Investment Strategy.

 

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