July 19, 2002 -
Learn Portfolio Management with Official NAIC Tools
ICLUBcentral now offers two levels of NAIC tools to enable investors to tweak
and trim their portfolios.
- NEW! NAIC Classic PERT & PMG
This upgrade to NAIC Classic includes NAIC's most popular portfolio management tools, including the
PMG Report, PMG Graphics, PERT-A, PERT-B, and the PERT Report. The NAIC Classic PERT & PMG
Add-On is great for investors of all levels, with a step-by-step tutorial and help from the Stock Wizard for
beginners, plus an experienced mode that lets more advanced users really let loose.
For a limited time, the upgrade is just $29 to owners of NAIC Classic. Order toll-free at 1-877-ASK-NAIC
(877-275-6242), ext 0, or online at the following address: www.iclub.com/pertpmg/buy
More information & demo copies available at www.iclub.com/pertpmg/.
- Stock Analyst Plus
Not for beginners! NAIC's most powerful analytical software, Stock Analyst Plus is the best software for
advanced stock and portfolio analysis, with unmatched balance sheet capabilities.
Order for $99 at 1-877-275-6242, ext 0, or online at
More information & demo copies available at www.iclub.com/saplus/.
Barb's Tips: Portfolio Management Steps
Portfolio management starts at the point you own an investment. It is the
process of managing your investments to achieve specific objectives. Portfolio
management encompasses several related topics:
Assessment of each investment to confirm its expected performance,
Assessment for tax accounting,
Assessment for diversity of holdings for industry or sector, size,
Assessment of portfolio risk,
Assessment of potential income and return for the portfolio.
After a completed portfolio assessment, you are then able to make changes
that achieve specific portfolio objectives. For NAIC-style investors, the first
assessment item in the list is key to portfolio management. It requires updating
an SSG and/or referring to the PMG and PERT reports for the most current company
results. The second assessment requires a software program like the NAIC Club
Accounting program or its online version. The final three assessments are the
focus of this tip.
The Portfolios section in Stock Analyst
PLUS! (SA+) helps you assess a
portfolio to determine if it is meeting specific objectives. Objectives are
mostly those that NAIC talks about and that you should be consciously following.
For instance, is the basket of stocks that you hold capable of achieving an
overall 15% total return? When you have set up your portfolio in SA+, this total
return figure will be refreshed each time you update an individual company's
Use this same objective for the other items. This information is reported in
the Portfolio Summary area at the bottom of the report. The holding period
information indicates your trading (buy/sell) activity. For NAIC-style investing
the average holding period should be 4-5 years or longer. For new portfolios
this figure will be proportionally smaller.
Access Diversification from the "Divers" button in the Portfolios
Report. Most often used are the choices of size (typically by revenues) and
sector. The guidelines here depend on your objectives. Most NAIC members will
likely hold a majority of large companies (50-70% of the portfolio). This is not
such a bad thing as long as the other portfolio items (total return,
upside/downside ratio) meet expectations.
For sector diversification a balance is more desirable. You may find that an
established portfolio becomes skewed due to several large holdings — stocks
that have done well for you. A large holding is not a bad thing as long as the
stock is performing (growing sales and earnings) as you determined in the SSG.
You may wish to consider selling a large holding as the potential future
return reduces. At an U/D of 0.5/1 (halfway in the hold range) you may consider
using the Challenge Tree (challenging the company with another company with
superior characteristics) to improve the overall potential of the portfolio. In
all instances, if the company's conditions are changing adversely, a sell
consideration may be appropriate regardless of other indicators.
Managing a portfolio with SA+ is simple. Updating individual stocks
automatically updates the Portfolio Summary to report the overall status of your
holdings. Your main concern is to set objectives for the portfolio as you do for
individual stocks and make sure that your portfolio meets those objectives.
This week's segment of Barb's tips was written by Corry
Interview: Dragons in Ascent
The Dragon Investment Club of Southern California has seen demonstrable
growth this year. Not only has their portfolio been doing well, recovering from
a 12% dip in 2000, but three club members have also given birth. They hope to
keep up the portfolio growth rate, but have little expectation for maintaining
the birth rate.
In 1999, Dr. Hau Vu founded the Dragon Investment Club of
Southern California. The club's portfolio currently holds about one stock per
each of the 27 members. The Dragon Club began as buy-and-hold investors, but
jumped on the Internet bandwagon in 2000. They were burned after the Internet
stock bubble and they blame this on having strayed from their basic investment
guidelines. Luckily, they still had their initial, solid investments: Wal-mart,
Wells Fargo, and Home Depot, for example. Over their club lifetime, they've beaten the S&P
500 by two or three percent.
Since 2000, they've returned to their investing
fundamentals. Dr. Vu's current advice is: "Have certain basic principles
and stick by them, whatever the market does. Don't get enamored by what the
market does. If a stock has a potential of doubling your money in 5 years, then
keep it. Otherwise, sell."
wisdom, the Dragon Club purchased Apollo Group (APOL), an adult education
company, because it had shown a positive cash flow and revenue growth for prior
six to seven years. That investment has yielded 120% returns in under two years.
Another recent winner for the Dragons has been Concord EFS Inc. (CEFT), an
electronic money processing company.
Before joining an investment club, Dr. Vu
thought stock brokers were far more superior than any individual investor. Since
then, he's learned that expert-quality investment information is available on
the Internet for those willing to put in the time and do the research. Club
president Thuy Nguyen makes sure that the club evaluates each holding at least
annually using NAIC's Stock Selection Guide (SSG). The club stresses member
education. According to Nguyen, the club's greatest asset lies in its active
members. In her words, "If you are a passive person, you go with the flock. Kind
of like sheep who don't have a strong enough personality to stand their own
ground. So whoever has the strongest personality could determine how the club is
investing. You need quite a number of strong members to object to [stock
purchase] recommendations. If we didn't have strong character in the club, we
would have lost a lot more money."
By Ann Schiff
$99 NCA 2 Offer Extended
Due to customer demand, NAIC and ICLUBcentral have extended the $99 NCA 2 upgrade offer until NAIC
exhausts its stock, so you still have a chance to get one before the upgrade version disappears!
Users of NAIC Club Accounting 1.04 - get current with tax law by upgrading to NAIC Club Accounting for
Windows version 2. To purchase, see http://www.store.yahoo.com/betterinvesting/25103.html or call NAIC
at 1-877-275-6242, ext 0.
New series: Thoughts and other comments from Joe Pulizzi,
individual investor and investment club freelance writer.
Patience Will Make You Money in this Market
I have a few friends at work
that I consider my stock market buddies. Basically, when we see each other, we
discuss the current status of the market. They were in such good moods around
February of 2000. Their 401(k) accounts were booming. One of my friends, Bill,
was even discussing early retirement because he was doing so well in the market.
I don't hear that from Bill
anymore. 2001 and 2002 have been different years, different animals. Now, it takes every
piece of advice I have to cheer him up. But there is one message that I firmly
believe in, and now my friends believe as well - patience.
Here is a great example I
like to use. There are two things I hate: traffic jams and lines at the grocery
store. A few years ago, I used to weave in and out of traffic trying to get
through the fastest. I would move back and forth - anything to make progress. I
would do the same thing at the grocery store. I would keep jumping to what I
thought was the "shortest" line. It took me a while, but I finally
learned my lesson. After weaving in and out of lanes, I would notice that the
same cars surrounded me. Those cars had stayed in their lanes while I was maneuvering
around. Sometimes, I even lost ground. The grocery store was worse. Once I
changed aisles, I would notice how fast the aisle I was in was moving. It seemed
to happen every time.
For a long-term investor,
the stock market works the same way. I know a few people who are buying and
selling like crazy in their 401(k) accounts. I also know a few clubs who are
doing the same, trying to get ahead of the market. They are now learning what I
have learned in traffic and at the grocery store. Patience almost always wins
out. In my recent discussions with them, my friends who have been buying and
selling in their 401(k)s are much worse off now than they would have been had
they just added to their current accounts. The investment club I talked to
regarding buying and selling had an even worse story. They had a couple of
stocks they thought were going to move lower in price. They loved the companies,
but were afraid of what the market might do. So, they sold those growth
companies and bought "more defensive" stocks until the bear market was
over. They would buy the growth stocks back at a much lower price later. What
did they find? The two stocks they sold have since added about 50%, while the
"so-called" defensive stocks have lost about 50%. Had they been more
patient, they would be
vastly better off.
You as an individual
investor or investment club can learn a lot from these people. For a long-term
investor, this could be a glorious time. It won't be easy, but if you are
patient, do your homework, and add to your current investments, you will see the payoff in a few
years. Don't concentrate on what the market is doing today - look at where the
market will be five years from now. You will be amazed at what bargains you made
because you didn't weave in and out of traffic.