Aug 12 2008
The ICLWager Story
Nearly six years ago a debate raged on an investment Internet forum over the merits of a software program called Take $tock 4 vs. investing in an index such as Vanguard’s VFINX, a mutual fund designed to track the S&P 500 index. One position argued how difficult it is to select individual stocks that will perform better than the market, as defined by the S&P 500 index. The other side took the position that all one needed to do was to follow the rules of the program. Now one needs to know a little bit about how the program works to better understand this argument.
Take $tock 4 (T$) evaluates stocks based on many criteria, but sales and earnings are two fundamental measurements. Take $tock ranks stocks based on Quality, Mood, and Price. Each stock is assigned the color green (good), yellow (OK), or red (poor) for Quality. Mood is a measure of the current P/E relative to the average P/E over the last five years. If the current P/E is too high or too low, the stock is given a negative Mood rating. If a stock meets a certain Quality ranking, then it is evaluated as to whether it is priced to buy or to avoid.
The person taking the position to follow the T$ program further stated that if one followed this program, the portfolio would double in five years. To do this requires an annual gain of approximately 14.9% each year, a great rate of growth given the history of the stock market.
More on this story tomorrow.
Lowell Herr
Photograph: Grounds of Fort McHenry
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