NAIC Guide Chapter 14 Overview

 

The Challenge Tree

 

 

5-year upside/downside ratio & quality to enhance portfolio’s defensive strength

 

v     A stock selling in the lowest 1/3 of its estimated 5-year price range w/100% appreciation

v     A stock offering sound reasons to expect substantial price appreciation in the next 6 – 18 months

 

 

Assembling Data

 

v     NAIC SSG

v     NAIC Portfolio Management Guide & PERT are a plus

v     % Gains = (5-Year High Price – Present Price) / Present Price

v     % Loss = (Present Price – 5-Year Low Price) / Present Price

v     Use single words for the section “6 to 18 Month Upside Action”, although small comments can be made

 

 

Making Decisions

 

v     Challenger stock must be of equal or higher quality

Ø     Use Value Line or S & P Stock Guide as reliable sources of quality ratings

v     When you id a stock with 3:1 upside/downside ration and 100% appreciate – BUY IT

Ø     When you can not find such a stock, put up to 20% of most speculative stock into short-term bonds

 

 

Errors to Avoid

 

v     Do not hold lesser-quality stocks as a bull market winds down

Ø     Only stronger companies will survive the depths of the downturn that follows a boom.

v     Do not assume that just because a company has doubled in value, it cannot continue