Ranking Stocks |
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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. MSFT, GOOG, HD, INTC, SBUX,
FAST, QCOM, PAYX, AMAT 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? |
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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. |
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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.
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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? |
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For more than eighteen years, the GetFolio Ranking System has
accurately anticipated stocks' subsequent
relative price performance. The Ranking System
screens thousands of stocks, ETFs, and Indices,
and mathematically builds a great portfolio with
a
82.73% Win/Loss Ratio. This Ranking System
is the basis for the GetFolio recommendations,
and is a central component of the GetFolio
Investment Strategy. |
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Next:
Position Manager |
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