If you had purchased an equal amount of the top rated stocks recommended by the Value Stock Selector back in January 2004 and sold them on August 4, 2010, you would have realized an 89.53% gain (excluding commissions and dividends).
That compares to a 0.02% gain for the S&P 500, a 2.60% gain for the Dow and a 12.51% gain for the Nasdaq over the same period of time.
The recommendations are shown in the table below.
Now many investors are happy to simply find excellent stocks and purchase equal amounts. When you buy fundamentally solid, undervalued stocks, you generally do well no matter how you choose to construct your portfolio.
However you can wring out even better returns by allocating your stocks in a more intelligent manner. In fact, a logical Asset Allocation and Portfolio Optimization strategy can significantly improve your results.
How to Use Asset Allocation for Even Better Market-Beating Returns…
That’s why the Value Stock Selector includes built-in Asset Allocation and Optimization functions, based on Nobel Laureate William Sharpe’s Sharpe Ratio, to effectively allocate stocks and optimize your portfolio.
As with everything in the software, it’s simple and easy to use.
You start by selecting the stocks you want in your portfolio (by clicking the checkboxes next to them in the main window).
The software tells you exactly what each stock’s fundamentals rating and economic moat strength is and allows you to dial in specific Margin of Safety and worst case return parameters.
You’ll also see each stock’s current price, maximum recommended purchase price and an estimated price at which you should sell.
You want to allocate your funds to stocks with the lowest correlations among them. You can see the correlations by simply selecting all the fundamentally strong stocks in the list and running the allocation function.
A correlation matrix will be displayed so you can select the stocks with the lowest correlations.
Once you’ve made your selections, you’re ready to begin the Optimization process by running the allocation function again with your revised selections.
Asset Allocation Tool…
Bring up the Asset Allocation window (from the Tools menu) and click the Start button. The stocks you selected will be analyzed and a recommended portfolio allocation will be displayed in a pie chart.
You can also select a customized date range and risk free rate if desired, however most people simply keep the defaults as they’ve been specifically chosen to work well over long periods of time.
There are 3 tabs at the bottom of the Asset Allocation window. You can use them to see a detailed allocation report as well as the correlations between your selected stocks.
For maximum effectiveness, selected stocks should have low correlations between them. A good rule of thumb is to ensure that stocks have no more than a 0.30 correlation coefficient between them.
Clicking on the Report tab will display the recommended allocations in a report format and show you additional information about the suggested portfolio.
Read the Report…
You’ll see at a glance the expected Portfolio Return and Risk as well as the percent of Risk eliminated because of diversification and optimization. The report tab also shows the portfolio’s Sharpe Ratio and Concentration.
As you can see, everything you need to make an intelligent investment decision is displayed right there in an easy-to-read format.
Powerful Allocation Engine…
But don’t let the simplicity fool you, under the hood lies a powerful Allocation engine based on the best research and technology available today. It’s part of the InvestKit Analysis Engine used in our Value Stock Selector and Pragmatic Investor software packages. After all, if you’re going to achieve great returns and minimize your risk in the stock market, you need software that is rock-solid.
In fact, if you had used the Asset Allocation function on the portfolio we saw in the table above, your returns would have jumped from an already stellar 89.53% to an incredible 117.48% gain over the same period.
That means a $10,000 investment in the Asset Allocator recommended portfolio, shown in the table below, would have grown to $21,748 at the end of the period (excluding commission costs and dividends).
This compares to an ending portfolio value of $10,002 for the S&P 500, $10,260 for the Dow and $11,251 for the Nasdaq at the end of the same period (again, excluding commission costs and dividends).
Recommended Portfolio Allocation
Value of Portfolio
August 4, 2010
Share Price Gain/ (Loss)
With the Value Stock Selector you get industrial strength investment results with just a few mouse clicks.
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