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Varchild2008 (84.06)

Varchild's Roadmap Strategy to 50% Returns

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February 13, 2010 – Comments (4)

I am not going to STOCK PICK your way to 50% returns.... Instead... I am going to assume you have a portfolio of about 5-10 stocks.   I have 6 stocks.

GOAL:  By the end of the year achieve a 50% return or better on your portfolio.

STRATEGY:    

1)  Calculate your portfolio's year to date returns both on an individual stock basis and an overall percentage.....

Example:  A1 = 10% UP year to date.   While D1 is DOWN 12%  in my fictional portfolio.
My overall percentage in my fictional portfolio is UP 8% year to date.

2)  Now I can set up my game plan by first identifying which one of my stocks are the weakest year to date performers and which ones are the strongest: 

STRONGEST:  (A1)  &  (B1)
WEAKEST:   (C1)  & (D1)

3)  Now do homework on stocks C1 and D1 to determine whether the share price weakness makes any sense given the past performance of the stock, MACRO economic picture in where their business is....etc.

A1 and B1 are making lots of money for you ALREADY this year....  Homework for these should be significantly less than C1 and D1.

Determine:   Are C1 and D1 worth keeping around?   If not then dump them and pour the cash into A1 stock and B1 stock.

However, if they are worth keeping...  Then NEW MONEY goes straight into C1 & D1 stocks with most if not all of it targeting the weaker of the two.

4)  In my situation I have such a significantly weak stock that it makes no sense for me to put new money into anything else BUT that stock.   So I would be 100% into D1 stock until I saw the share price start to pair the significant year to date loss it has.

5)  You know the saying "Sell in May and go away?"   How about do all of your buying before May and Let it Ride?

I'm up 8% already in my fictional portfolio (my real life one is much better).

If my strategy doesn't work.. then I should not see 50% returns... however... I think this strategy is basically what all smart investors do anyhow....  But NEWBIES need to know this stuff so they can see how investor behavior works.

6)  Why not pour money out of a bad stock and into a NEW stock?

Cause then you are gambling..... even if you go into the same sector you may be faced with a stock that is performing so much better than yours year to date that it in fact is OVERPRICED!

Plus... if you stick with the 5-10 stocks you have already chosen.... then you are more well versed in those stocks...  Your strongest performers year to date are that way for a reason....  So why waste time learning a new stock versus dumping your bad stocks into your best performers?

A Bad Performing Stock is either because it is a BAD company...or a company in a BAD sector....or the catalysts are not until late 2010 versus Q1/Q2 2010.  Your best performing stocks probably have catalysts justifying the share price growth happening in 1st half of 2010.

Ok.. Here's what I mean:

STOCK                        CATALYST
(F)            =                   FIESTA

(EGY)       =             Nat Gas / Oil  Wells program that may take ALL YEAR to learn their fate.

F is a good performing stock this year....

EGY is a bad one..... 

Which Catalyst is more Transparent and will arrive sooner?  (F)
Which Catalyst is less transparent and may take all year to understand if their is going to be a big payout for shareholders?  (EGY)

You put money into a stock like EGY as a gamble that LONG TERM their 2009 oil well strategy will pay out.  Or you DUMP  EGY in favor of a more transparent stock with quicker catalysts.

In a 50% returns strategy you want quicker catalysts with TONS of TRANSPARENCY.....
I'd want an (F) stock instead of a (EGY) stock in order to achieve the 50% returns goal.

I love Small Caps... don't get me wrong....  But even with Small Caps same thing applies.  I want to see an obvious reason to invest in a (GLUU) versus a (GME) or whatever...

DISCLOSURE:  I own shares of F.... No Shares of GLUU, GME, or EGY.

4 Comments – Post Your Own

#1) On February 13, 2010 at 5:27 PM, Varchild2008 (84.06) wrote:

CLARIFICATION:

This strategy assumes your $$$$ value in each of your stocks is pretty close to even. 

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#2) On February 13, 2010 at 5:34 PM, Varchild2008 (84.06) wrote:

FURTHER CLARIFICATION:

Uhm Ultimately... the scenario plays out like this:

Start with nearly equal $$$ value in each stock....

End up with ever increasing $$$$ value in your worst performing stocks at the beginning of the year.....

At the end of the year you will be overweight your bad stocks...underweight your good stocks...

Beginning of next year....  Catalysts from last year are gone...
If you do not see any Catalysts anymore in any of your stocks then you mark it for REMOVAL  and dump the $$$$ in whatever your stock you believe has a 2011 Catalyst.....

You don't want to end up with shrinking portfolio though down to 1 stock.....or 2....  So if you would go below 5 stocks.... THEN you can choose a NEW STOCK to invest in.

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#3) On February 13, 2010 at 6:24 PM, DrDraconian (< 20) wrote:

Congratulations, Varchild.  In essence, you just re-invented the Dogs of the Dow investment strategy.

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#4) On February 14, 2010 at 7:03 AM, Donnernv (< 20) wrote:

Var:

Take your meds on the schedule the doc laid out.  I think you missed the last five doses.

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