A Guide to your Newsletter from Invest/O

 

As part of our efforts to improve our newsletter for our subscribers, we are issuing this guide. We hope this will further your understanding of the Risk Factor, or facilitate the managing of your own portfolio. We will continue to improve translating the numbers into words for those of you who desire this form of communication.

Please save this guide as it will only be issued on a yearly basis, or when we have instituted changes to the newsletter

Page one: The briefest synopsis of the Risk Factor can be found in the boxes across the top of the page. The Overall Market, Long, Intermediate, and Short Term Risks, are summarized in these boxes. Brief explanations may be found in the paragraphs that follow the boxes. The top half of the page is a translation of the present status of the Risk Factor from the graph below. If you are new to the newsletter, you may find it insightful to look at the past history in the graph. If you take the time, you will see how closely the Risk Factor predicted major market highs and lows since its inception in 1972.

For an example of this, let's look at the most recent major example. In October 1987, the Risk Factor gave a 6 month notice of the crash -- enough time to purchase options and protect our accounts. Our Master Portfolio increased 38.5% in 1987.1

Page two: A summary of the Master Portfolio's return since its inception in December 1981.

Pages three - five: These pages discuss issues that we feel are relevant and provoke some thoughts or insights into the financial outlook for the future.

Page six: This is for new investors who want to manage their own portfolios. This shows how $100,000 new to the market would be invested. If you are entering the market, and would like a starting point, this would be your guideline.

Page seven: This reflects the changes in the Master Portfolio since its inception and where it now stands. If you want your portfolio to mirror the Master Portfolio, make the appropriate percentage changes according to this latest status of the Master Portfolio. Let's examine some points of interest on pages six & seven.

The first line states that, "It is now OK to purchase any security that does not have a zero in the target # shares column." This column is second from the right.

 

 

The next line has information that pertains to the columns in the portfolio. The columns are:

Columns representing the Stock Symbol, Stock Name, and Industry Groups, of the securities.

Industry Rank: The stocks' industry group rank compared to all groups.

EPS Rank and RS Rank: The earnings per share (EPS) rank and the relative strength (RS) rank of the stocks. The higher the number, the better. Relative strength indicates the strength of the stock compared to all other stocks.

Ave: The average of the earnings per share, the relative strength, and group rank.

VL and S&P: Value Line and Standard & Poor's financial strength rankings: VL: A++ to C. S&P: A+ to C-. NR= Not Rated. NL= Not Listed.

Target Yield: Average current yield of the portfolio and each individual yield down the column.

P/E: Average price/earnings (P/E) ratio of the portfolio and individual P/E's down the column.

% if 100% Invs: The percentage of the portfolio the stock represents if you were 100% invested, (all money in stocks and none in cash), and the stocks average rank is less than perfect @99. The highest possible is 99.

% of Curr Port: The current percentage that the stock represents. This is lower than the previous column if the stocks average rank is less than perfect @ 99.

The current price column.

The target # shares to purchase. If it states zero, we do not recommend purchasing this security at this time.

The Value of Shares as of the date at the top of the page.

Beneath the stock listings is information concerning the use of put options. This will give the option symbol, the option name, the expiration month, the strike price, and the type of option we recommend. These put options are being used as an insurance policy to protect the value of the stocks in the Master Portfolio. If you are managing your own portfolio, option trading beyond our recommended option should only be undertaken by "sophisticated investors.2"

Finally, we will recommend a cash position for these market conditions. If there is extremely low risk, cash will be minimal, and we will be fully (100%) invested. As the risk goes higher, we will recommend higher levels of cash for safety. This cash reserve will provide purchasing power at the next buy signal. Under certain conditions we will use margin.

Page eight: This page reflects the thoughts of other investment advisors that we feel are noteworthy. They may or may not reflect our outlook, but we feel their points are valid. Other times, these opinions may reinforce our outlook, or discuss issues that have merit.


1 Pursuant to SEC regulations, it is not our intent to state, indicate, or imply in any manner whatsoever that any charts, formulas, theories, or methods can guarantee profitable results in the future and/or equal past performance.

2 Option trading can be extremely volatile and risky for the uninitiated investor. Please call our office if you have any questions concerning the use of options. Options may also be a conservative, prudent vehicle when used by a professional with the appropriate planning, education, experience, and research.