It’s hard for us to not be able to recommend stocks to you.
That’s not what we do.
We’re not a financial advisor, so we can never tell you what to buy or sell. This is not only the responsible thing to do, but it is also the law. We can’t possibly know your personal financial goals or risk tolerances. We do our best, however, to highlight our business analysis and the market mispricings that we see.
Stocks that we pound the table on are included in the Best Ideas Newsletter portfolio. Stocks that we like as dividend growth ideas are included in the Dividend Growth Newsletter portfolio. We’ll be adopting a new designation for these companies in lieu of their stated Valuentum Buying Index ratings in their reports so that it is absolutely clear that these are our best ideas at any time. We’ve been thinking of doing this for a long time.
Why are newsletter holdings our best ideas at any time?
Let’s think for a moment. When a stock registers a 9 or 10 on the Valuentum Buying Index, our analyst team takes a look as to whether we want to include it in the portfolios. If we do, it is included; if we don’t, it is not. There are dozens of dynamics that factor into the decision-making process from sector weightings to overall market direction and beyond—factors beyond that of the individual company.
After a company is entered into a newsletter portfolio, the Valuentum Buying Index rating will change. As the stock converges to its fair value, its Valuentum Buying Index rating will fall. Yes, it will go down. And we want it to!!! The fact that the companies in the Best Ideas Newsletter portfolio have lower ratings than others means that their stock prices have gone up! This is a good thing.
As the share prices of firms in the portfolio converge to intrinsic value, the Valuentum Buying Index rating will vary from 3 through 8 depending on the company’s DCF valuation, relative valuation, and technical/momentum indicators at any given time. We may trim or add to the position opportunistically under these conditions, but we won’t remove it outright until it registers a Valuentum Buying Index of 1 or 2.
Do you see how our rating system translates into a qualitative dynamic? If it is a 9 or 10, “we’d consider buying.” If it is a 3 through 8, “we consider holding,” and if it is a 1 or 2, “we’d consider selling.” The wealth of academic research and empirical studies are significant from the dozens of sources in the white paper backing the Valuentum Buying Index to the empirical performance of the Best Ideas Newsletter and institutional case study. Let us know if you’d like to view these pieces. They are all available on the website.
It seems almost without fail that when we add a company to the Best Ideas Newsletter portfolio or Dividend Growth Newsletter portfolio, it goes up immediately, then drops 5%-10% below cost, and then after everyone forgets about it, it surges—whether it goes up 50%, doubles or more. Such a dynamic has happened many a time, from Teva (TEVA) and Gilead (GILD) to Google (GOOG, GOOGL). Google is soaring 10% today! General Electric (GE) is bouncing back as well. In the newsletter portfolios, we target our best ideas to work out over a 12-24 month period.
We’re as disappointed with some of our new additions as the next person. From Alibaba (BABA) and Priceline.com (PCLN) in the Best Ideas Newsletter portfolio to HCP (HCP) in the Dividend Growth Newsletter portfolio, these ideas have gotten off to a rough start. But what about the fantastic performance of other holdings in the portfolio? This is in part why we’ll be changing our rating system to designate newsletter portfolio holdings as our best ideas within the reports directly. There is no change to the methodology itself, but we just want to make the reports of companies in the newsletters immediately recognizable.
Why not make it easier, right?
Cheers to those following our best ideas! Especially those holding Google! By the way, Kinder Morgan (KMI) is now trading below $37 per share from our $40 exit price in the Dividend Growth Newsletter. Remember: It’s not only the ideas we highlight to consider, but also the ones where we highlight risks that everyone else is overlooking. We didn’t win anything when Seadrill (SDRL) cut its dividend, and we won’t win anything if Kinder Morgan does either.
We’re here to highlight the risks and help, not win fanfare—though I must say I very much appreciate your support. In fact, I need it. There’s some awful things said on the Internet, and our members help to keep it real.