Messages: What Members Are Asking On-Line
by CI Staff
In this article
- Interpreting Symbols
- Shadow Stock Portfolio
- AAII Mutual Fund Portfolio
- Converting From Captools
- Criteria for AAII Stock Screens
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In the Rule #1 article in the September/October 2007 issue, you discuss how to calculate the sticker price for a stock. The formula for the sticker price that appears on page 26 uses the ^ symbol, and I was wondering what its function is.
CI Editor Responds: Phil Towns Rule #1 investment strategy revolves around finding companies with strong growth and solid balance sheets at attractive prices. The value component of his approach centers on a stocks sticker price or fair value. In order to arrive the sticker price, Town first determines the companys future growth rate and then uses it to forecast future earnings. He then calculates a future price-earnings ratio and multiples it by the expected future earnings to arrive at a future stock price.
The sticker price is the future price discounted back 10 years at 15% (Towns minimum annual rate of return). The calculation is: Sticker price = Future market price ÷ [1 + (Minimum required annual return on investment ÷ 100)] ^ 10.
The ^ symbol in the calculation indicates that the expression [1 + (Minimum required annual return on investment ÷ 100)] is being raised to the 10th power (multiplied by itself 10 times). As a simple example, we can rewrite the expression 10 ^ 10 (10 multiplied by itself 10 times) as 10 × 10 × 10 × 10 × 10 × 10 × 10 × 10 × 10 × 10.
Shadow Stock Portfolio
I am a first-time Shadow Stock investor and toward the end of November (2007) I picked 14 stocks from those shown at the AAII Web site to be passing the Shadow Stock screen at that time. However, looking at the current Shadow Stock portfolio, the stocks I purchased are not in it. Why is this?
CI Editor Responds: Once a month, we run the Shadow Stock screen and post the Passing Companies list at the Shadow Stock Portfolio area of AAII.com.
AAIIs Chairman, James Cloonan, manages the real money portfolio AAII uses to report performance. However, he only makes changes to the actual Shadow Stock Portfolio on a quarterly basis to correspond with the reporting schedule of most companies.
Dr. Cloonans latest buys and sells were made on December 7, 2007, based on data available at that point in time. Therefore, the stocks passing the Shadow Stock screen at the time of his buys will probably differ from the current passing companies listed at the Web site.
To stay on top of changes made to the Shadow Stock Portfolio, AAII members may subscribe to an RSS feed through which they will receive alerts whenever changes are made to the portfolio. For information on the Shadow Stock Portfolio, visit the Shadow Stock Portfolio area of AAII.com. For information on AAIIs RSS feeds, visit www.aaii.com/rss.
AAII Mutual Fund Portfolio
Why is the CGM Focus Fund (CGMFX) listed in the AAII Mutual Fund Portfolio? I attempted to buy it through my broker and was told it was an advisor fund and not available for retail investment.
CI Editor Responds: In simple terms, brokers only offer those mutual funds that are the most profitable to sell to customers. Full-service brokers often do not sell no-load funds because they are not compensated for selling them. Instead, they focus on loaded funds, where the mutual fund company pays the broker a commission for selling their funds.
Since all of the mutual funds in the AAII Mutual Fund Portfolio are no-load funds, you are more likely to find them offered by discount brokers. However, there is no guarantee that all the funds in the portfolio will be traded by one broker. AAII uses both Charles Schwab and E*Trade to manage the Model Fund Portfolio.
Also, keep in mind that any of the funds can be purchased directly from the fund companies.
Converting From Captools
I have been a Captools user for years but they no longer support the individual investor version. After reading the July/August 2007 comparison of portfolio management software, I am wondering what the experience has been for other users switching to another program.
CI Editor Responds: In the July/August 2007 comparison, Cara Scatizzi highlighted software packages claiming to offer some level of data importing from Captools. If you have made the switch from Captools to one of these other programs, we are curious to hear about your experience. Feel free to E-mail us at firstname.lastname@example.org.
Criteria for AAII Stock Screens
I would like to learn about the criteria used for the different screens you track at AAII.com. Is this information available at the Web site?
CI Editor Responds: At the All Screens page of the AAII Stock Screens area on AAII.com, (www.aaii.com/stockscreens/allscreens.cfm), you will find a list of all the stock screening methodologies we track. For each approach, there is a link to the Screen Overview, which offers an in-depth review of the methodology. In addition, to links to the latest Passing Companies and Performance Chart, there is a link to the Screening Criteria. There you will find the criteria, in plain English, underlying each approach.