Use our ‘system’ to profit in stocks

The strength of The Investment Reporter stock selection system lies in not attempting the near-impossible task of outsmarting all other investors consistently (which is what you have to do if you want to buy at the bottom and sell at the top). Instead it aims to profit by tapping into the natural growth that most well-established companies enjoy over long periods.

Stock_Selection_SystemOur system for picking stocks limits your risk, limits your commission expenses, and has worked well for our subscribers over the past 77 years. Here are some of its main points:

■ Invest gradually.

■ Invest in the shares of well-established companies that are an essential part of the economy, and that can build repeat business. You don’t want to invest your retirement stake in companies that depend for profit on finding out in advance about the latest toy craze.

■ Buy stocks that you might want to hold on to indefinitely. This way you minimize trading costs and capital gains taxes. What’s more, these stocks often prosper most over a period of years or decades.

■ When looking at annual reports, pay closest attention to the financial statements and their footnotes. Pay some attention to Management’s Discussion and Analysis. Pay less attention to the words (especially in the president’s letter to shareholders), and least of all to the pictures.

■ Be skeptical of predictions—your own, as well as those made by the company itself, or outsiders. Predictions are worth considering, but as we always say, they’re the weak link in the investment process.

■ Pay as much attention to the size of a company’s assets as to its earnings. Assets are less liable to be misrepresented than earnings. They’re also more stable than earnings and are apt to hold up better in a slump.

■ Consider sales per share as well as earnings per share. You might call sales the raw material of earnings. If a money-losing company is selling for, say, 25 per cent of its yearly sales, it may be a buy (though only for aggressive investors). If it’s selling at, say, 10 or 20 times is sales, it probably isn’t a buy.

■ Diversify your holdings across the five main investment sectors. That is, stocks in finance, utilities, consumer products and services, manufacturing and resources. This will give you a range of holdings that includes stocks with stable businesses, and stocks whose profits vary with the business cycle.

How well does our stock picking system work?

Our system doesn’t aim at figuring out when to buy and sell. Instead, we try to identify stocks that are worth buying and holding for years, if not decades. You’ll mainly want to sell them when your investment objectives change. Naturally, that’s largely a function of your age and income.

The strength of our system lies in not attempting the near-impossible task of outsmarting all other investors consistently (which is what you have to do if you want to buy at the bottom and sell at the top). Instead it aims to profit by tapping into the natural growth that most well-established companies enjoy over long periods. Over the years, most of the successful investors we’ve met have told us that they practise a system much like ours.

This year is The Investment Reporter’s 77th year of continuous publication. We think the longevity record itself is pretty strong evidence of the efficacy of our system to produce the desired results for our subscribers.

But don’t just take our word for it. The Hulbert Financial Digest has been tracking the results of independent investment advisory newsletters since 1980. We invite you to see for yourself how well The Investment Reporter’s system stacks up against some of the best investment advisory newsletters in the world at http://hulbertratings.com/performance-scoreboards/ without charge. Please address any questions about that site to Mr. Hulbert using the ‘Contact’ tab on the Hulbert site.

This is an edited version of an article that was originally published for subscribers in the April 20, 2018, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.

The Investment Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846