Welcome to Will-Marshall.com!
 
  Home > Odds-On Investing > ODDS-ON Investing Approach

 

ODDS-ON Investing™ Approach:


In addition to (1) the PEG less than 1 and (2) debt less than 25%, the ODDS-ON Investing™ approach includes the following concepts. (The Buy, Hold & Sell Disciplines page of this website contains more specific buy, hold and sell disciplines.)

  • Pay Attention to the Market: In general about 50 percent of a stock’s return is related to the overall market, and 25 percent is related to the movement of its sector (industry) within the market. Only 25 percent is related to the individual stock.
    Know the market direction before buying or selling an individual stock. Watch the market direction and reduce investments when the market trend is down. Investor's Business Daily is a timely, well disciplined source of overall market direction. Stock Trader’s Almanac has excellent insight on daily, monthly and seasonal patterns. See the section titled Buy, Hold and Sell Disciplines.
  • Diversify: Do not invest more than 5 to 10 percent of a portfolio in any one stock.
  • Limit Losses: Sell when a stock declines 7-8 percent below your purchase price. Remember that it takes a 100% gain to recover a 50% loss. Be prepared to sell if market declines take your stocks down through their 50-day moving average. Also remember that you don’t have to make money back on the same stock that you lost it.
  • Stock Selection: VALUE Discipline: Buy a stock when its stock price is below its Enterprise Value, and sell when the stock price is above their Enterprise Value. To determine the relationship between stock price and Enterprise Value, use the Price/Earnings to Growth ("PEG") ratio as a proxy. It is described in the section titled The 2nd Most Powerful Formula in Finance and in more detail in Rich Shareowner, Poor Shareowner™ (Revised Edition) and in Money Ain’t Free. Also see the section on Buy, Hold and Sell Disciplines.
  • Stock Selection: SUPPLY & DEMAND Discipline: Once stocks have been selected using the PEG criteria, do a second screen, or overlay, on the stocks using technical analysis (sometimes called charting). This helps to indicate if institutional investors are buying or selling in large volume. One of the most accessible, cost effective sources of data for technical analysis of individual stocks and industry groups is Investors Business Daily (www.investors.com).

The overall idea of ODDS—ON InvestingTM is to: (1) identify stocks that are selling below Enterprise Value using the PEG criteria (and debt less than 25 percent of capital), and then (2) to buy them when technical analysis indicates that institutional investors are moving into the stocks. Sell them when:

  1. They rise too far above Enterprise Value. This can be estimated using the PEG ratio, and can be more effective by looking to sell if stocks rise 40-50 percent above their 50-day moving average (later in the stock cycle the sell point reduces to perhaps 20% above the 50-day moving average.);
  2. Technical data indicates that institutions are beginning to sell, or are not supporting them as they reach for new highs (e.g. stocks are reaching new highs on below average trading volume.);
  3. The stock price declines to 7-8 percent below the purchase price; or
  4. The overall market trend is down.

More details of the ODDS-ON InvestingTM disciplines are discussed on this website’s Buy, Hold and Sell Disciplines page. The investors.com website also contains free, excellent educational programs on both market and stock buy, hold and sell disciplines.

 


 
Copyright ©2017 William G. Marshall. All Rights reserved
Web site design and web site development by Americaneagle.com