How the myICLUB Portfolio Summary Report Indicates Buy or Sell
The company overview on the report doesn't always match the results of your stock study. Here's why.
With a long-term stock investing philosophy such as the one taught by BetterInvesting, it is actually quite rare that a company in your portfolio may reach a price at which one might conclude that its stock is over-valued and thus ripe to be sold.
More frequently, you are likely to find that companies that you already own are priced at a reasonable level and are good candidates for additional investments. Investors should remember to work through the biases that affect decisionmaking in these cases such as a fear to add more to a position that has decreased in value since the original purchase or a desire to avoid decreasing the average cost basis by adding to a position that has increased in value since the original purchase.
The Portfolio Summary Report is a great resource for quickly reviewing your current holdings with an eye towards finding opportunities for adding to your positions from a more analytical perspective. In fact, this report is so useful that if your investment club only provides one report on the club portfolio to members each month, this is probably the report to choose.
One common point of confusion about this report is the last column on the right, labeled "REC." This is the "Recommendation" based on the judgment that you have entered into the program for each SSG linked to the myICLUB club account, and could be either "Buy" or "Sell." (A "Hold" is otherwise implied by a blank field here.) Frequently, though, this recommendation doesn't match the recommendation in the underlying Stock Selection Guide completed by the member. Why not?
The information on this report is actually based on the data that was displayed in the BetterInvesting Portfolio Management Guide (PMG) report for a company, which incorporated some additional information that is not on the SSG. The PMG is no longer in common use but was designed to help manage a stock that you already own by reviewing a history of the stock's price and P/E ratio movements over time through the buy, sell, and hold zones. This is in contrast to the SSG, which is designed to help you make a purchase decision on a new company stock. The PMG was a focused tool that would help investors track the changes in valuation and identify buying opportunities. This data and trends from the SSG and the PMG are aggregated in the Portfolio Summary Report.
Here's how the report can be interpreted:
A "Sell" is triggered on the Portfolio Management Guide and therefore in the Portfolio Summary Report if three conditions are met:
- The price is in the SSG Sell range, AND
- The P/E is at least 150% of the 5-Yr Average P/E (a Relative Value of 150%), AND
- The Projected EPS Growth Rate is less than 12%.
There are two criteria that trigger a "Buy" recommendation on the report:
- The price is in the SSG Buy range, AND
- The Current P/E is at or below the 5-Yr Average P/E (in other words, the relative value is 100% or less).
Otherwise, barring some adverse change in the fortunes of the company, it is usually considered prudent to continue to hold the stock.
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