All of this information was tempered with a healthy dose of skepticism from
“A Random Walk Down Wall Street.”

In order to consolidate this information and clarify my own investment objectives, I integrated the essentials of these books into a 20-page essay that articulates my own investment strategy. The main points can be viewed on the Strategy page.

I believe that in almost everything, experience is the best teacher. Yes, I have modified my system as I gain experience. I have used a value-contrarian system since 1996. Some mistakes made when I started, forced me to make changes. When I established the model portfolios in November of 2004, I thought that the system was sufficiently refined and that the portfolios were sufficiently diversified to earn superior returns in any 6-month period. Considering the average returns (from November, 2004 to April, 2007) and having read “A Random Walk Down Wall Street” a second time, I now believe that 20 stocks are needed to fill that objective. And I believe that 3 to 5 years is a suitable time frame with which to compare my returns to the S&P and the DJIA.

Originally, my reason for using price/sales ratios came from What Works on Wall Street. In this book, different measures of pricing were researched to determine the best indicator of future price performance. Buying companies with low price/sales ratios (in relation to their industry) was one of the best indicators of future price performance.

The main reason that price/sales ratios are better is that sales is much less variable than earnings. Many value investors look at price/earnings as a measure of how cheaply you can buy earnings. But in a difficult business environment, when a company’s stock drops dramatically, companies that are cheap (relative to sales) can appear expensive by price/earnings ratios because of a temporary period of low profitability. The stock price often bounces back before normal profitability returns to the industry. If you wait for a return to normal profitability, you will often miss out on buying stocks at their lowest prices.

I also consider debt/equity ratio, dividend yield, insider trading, and price/book ratio in relation to other companies in the same industry.

No. There are too many risks in short sales.

No. I don’t buy options and I don’t write (sell) options. Buying options is too expensive to maintain long-term positions. Writing naked options means unlimited risk. Writing cover-call options is the best option, but you could have the underlying stock taken away from you, just before a substantial price increase. Everything considered  – the risk (of partcipating in options trading) is too high to justify the reward.

No. I am not associated with either bank.

Yes it is. It is not a pseudonym or a pen name. Nor did I change my name.