Could you use 5-year average growth rates of 16.58% to 36.61%??

joyfulguyFebruary 26, 2008

In the interests of full disclosure, I must say that the rates which I quoted in the subject line are reduced substantially by brokerage commissions.

I have been in contact with an analyst of stocks who has been investing for a number of years, in assocation with a partner.

The growth rate of their usual basket of about 25 stocks (they owned 21 recently) owned directly is as follows:

1992 ... 50.1%

1993 ... 77.8%

1994 ..... 1.5%

1995 ... 13.2%

1996 ... 37.4%

1997 ... 53.2%

1998 ..... 0.5%

1999 ..... 9.2%

2000 . -17.4%

2001 ... 64.8%

2002 ... 47.3%

2003 ... 68.4%

2004 ..... 6.0%

2005 ... 24.3%

2006 ..... 9.1%

2007 . -15.5%

For an illustration of the reasons that people skilled in the equity investment business say ...

... that one should be invested in this type of investment for at least five years, ...

... imagine how you'd have been feeling at the end of 2000 had you invested in their system at the beginning of 1998!!

But - by the end of 2002, the 5 year average growth rate had recovered to 16.58%, as they more than doubled their investment value in the next two years!

The 5 year average growth rate ending in:

1997 ... 36.61% high

2000 ... 16.58% low

2003 ... 34.46%

2004 ... 33.82%

2005 ... 42.16%

2006 ... 31.02%

2007 ... 18.46%, the largest variation being slightly over 20%.

The 10 year average growth rate ending in:

2003 ... 27.81%

2004 ... 28.22%

2005 ... 29.37% high

2006 ... 26.54%

2007 ... 19.67% low, the largest variation being slightly under 10%.

Note that there is much wider variation among the 5-year numbers given than among the 10 year list. The longer one lets one's investment run in a varied list of stocks, i.e. well diversified, the lower variation, or smoother, the average rate of growth.

These gentlemen usually plan to buy stocks priced under $25.00, for they feel that there is a better possibility of higher percentage of growth in a $20.00 stock than in a $50.00 or a $100.00 stock.

I can't tell you the list of stocks that they own now.

I've received their reasonably current newsletter that tells those details as free handouts at meetings on some occasions in the past.

They used to sell their quarterly newsletter for about $250.00 per year ... now it costs $500.00, with a limit of 1,000 subscribers (and have some openings).

I'm sort of looking for about 4 other persons willing to kick in $100.00 each that I'll add $100.00 to, in order to subscribe.

As one looks at their track record, this seems to be an advantageous time!

There are only a few pages in the newsletter ... and updates come by email on various occasions, usually when they make a change in the portfolio.

They have had at least one of their holdings taken over in almost every year, sometimes several - which usually offers a premium price over the market price at the time. Such offers usually occur for undervalued stocks.

Sometimes they carry a stock for a few years, waiting to achieve their target price. That is, one would not be buying and selling the whole 20 - 25 stocks each year.

Good wishes for increasingly skillful management of your income and assets.

ole joyful

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It appears that they are using Joel Greenblatt's "Magic Formula" or something similar. Joel claims that he has achieved 40% returns at his hedge fund, Gotham Capital.

His book explains how to achieve 30%+ returns.

Little Book

The Amazon book reviews contain the key points made in the book.

Basically, you buy 5-7 stocks every 2-3 months until you have 25-30 stocks. Sell the losers a few day less than a year and the winners a few days more than a year. Replace the stocks sold with new ones and continue.

The book explains how to pick the stocks using two ratios. Joel's website crunches the numbers for you. Currently, his website is free. Here's a link:

Magic Formula

    Bookmark   February 26, 2008 at 7:07PM
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It is my understanding that they don't follow a formula such as buying a given number of stocks every 2 or 3 months.

I think that they do a good portion of their buying late in the year, when a number of mutual fund managers are selling their losers.

They set objectives when they buy a stock and sometimes achieve it in the short term, but sometimes one runs for several years to achieve their target, re-evaluated from time to time in the interim.

They have patience.

It is my understanding that they've developed their own plan, don't necessarily follow another pattern, though it might appear so.

By the way - the greatest variation in their rolling 5-year growth rates was slightly over 25%, but using their plan for any of the 10 year periods would have reduced the variation to only 10%.

As I near age 80, I have about 80% in equity investments ... partly because I don't like earning interest. When I earn interest, it's been at a low rate for some time, and it's taxed at top rate, but when I earn dividends on Canadian stocks, the tax rate was lower until 2005, now is a substantial amount lower still.

I like to earn capital gains, in stocks that I own, as I don't have them developed year by year as in mutual funds, and taxed in those years, but tax on the growth is deferred until I sell.

When I sell, tax is charged at half of regular rate.

I like that scenario better.

ole joyful

    Bookmark   April 20, 2008 at 3:58AM
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What outside authority has verified their returns?

    Bookmark   April 26, 2008 at 5:10PM
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None of which I am aware.

Maybe I'm somewhat gullible, as I quoted from their website.

They've been associated with some people whose judgement I respect, and I have had some dealings with them which were satisfactory, so I have assumed that they are straight shooters.

ole joyful

    Bookmark   April 26, 2008 at 8:03PM
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Just watch what those straight shooters have their gun pointed at. Usually it's your wallet.

    Bookmark   April 29, 2008 at 3:56PM
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