Wednesday December 08, 2010
US Investment Report strategy is based on blending concentration with diversity to maximize gains and minimize risk:
Just a dozen or so stocks of leadership companies spread selectively over the fastest-growing sectors have consistently out-gained the market since 1985 and preserved USIR subscribers’ capital in downturns.
Those are the essentials of US Investment Report Editor Stephen Quickel’s investment strategy.
Read on to see how Steve describes his approach in his own words. Like US Investment Report, it is not long-winded but to-the-point and easy to follow.
How US Investment Report Makes Money for Investors:
This is Stephen Quickel, Editor of US Investment Report.
USIR’s greatest strength is stock picking. Since 1985 I have consistently recommended stocks in that have significantly out-performed the major averages—in up and down markets. Coming up with winning stocks is the starting point. Here is how I package them into three successful model portfolios.
Concentration to Maximize Gains
To maximize the rewards of strong stock picking, USIR’s strategy is to concentrate the model portfolios in a relatively small number of leading stocks and sectors.
Mutual funds that are invested in scores of stocks dilute their performance by owning too many. But I am confident enough of my stock picking ability to concentrate my portfolios in just 12 to 15 stocks spread across 6 to 10 rapid-growth sectors. When these stocks rise rapidly their gains are not watered down by scores of lesser stocks.
Stock Selection is the Key
Concentration puts a premium on maintaining superior stock selection. USIR’s ability to do so is evident from my long-term track record. Since the end of 1995, including the recent bear market, the USIR conservative concentrated portfolio has achieved gains of 431%, while our Growth Leaders Portfolio has shown gains of 1,063% and our Emerging Growth Portfolio has shown gains of 1,138%.
Effective Diversity to Minimize Risk
Concentration increases risk, of course. To reduce that risk, I spread my portfolios into leading stocks in 6 to 10 of the very best growth sectors I can find. I call this “effective diversification” as opposed to the excessive diversity of mutual fund portfolios.
But the stocks and sectors must be reasonably priced. I avoid rapid growth sectors where stocks have become over-priced and the downside risk exceeds upside potential.
But I also avoid sectors with lower price valuations where potential sales and earnings growth appears merely average. These stocks, sometimes mistakenly called value stocks, tend to under-perform the market and sap portfolio results.
Stop-Loss Limits to Preserve Capital
Preserving capital is just as important as ringing up large capital gains. USIR has successfully protected subscribers’ capital over the years by setting stop-loss limits on every portfolio stock, and raising them as prices rise.
Time after time, my stops have spared subscribers from serious losses when a stock or a sector or the whole market suddenly dips. Stop
s get us all out automatically, at a preset loss limit, before a 7% or 8% dip turns into a 20% or 30% disaster. If a stock recovers quickly, we can buy it back and ride it to the gain we had targeted. If it keeps going down, we have preserved the capital to buy other promising stocks.
The stops work. They’ve been a major tool in compiling USIR’s long-term track record. Investors who rode stocks down 25%, 50% and 75% in the last three years, hoping it would soon head up again, can appreciate the value of loss limits that might have gotten them out early with most of their capital intact.
USIR’s Strategy in a Nutshell
The essence of the time-tested USIR investment strategy:
1. Concentration in small portfolios of reasonably priced leadership stocks.
2. Effective diversification in a select group of rapid-growth sectors.
3. Avoidance of large, overly diverse portfolios that dilute performance.
4. Stop-loss limits on every portfolio position, raised as prices rise.
A Pennsylvania native, Steve earned an AB in English and economics from Dartmouth College in 1958 and an MBA from Dartmouth’s Amos Tuck School 1959.
After serving as a U.S. Navy officer in the Pacific for two years, he began his business career as an investment analyst at the Mellon Bank in 1961.
Steve joined Forbes as reporter in 1962, when the magazine was small and relatively unknown. Rising to Staff Writer, Associate Editor and Senior Editor, he wrote thousands of articles, including more than fifty cover stories, on all aspects of business and finance. His specialty was critiquing publicly traded companies and their managements.
He started Forbes’ first bureau in 1967 in Los Angeles, oversaw the expansion its worldwide bureau network until 1977 and frequently served as the magazine’s interim Managing Editor from the late 1960s onward.
In 1977 Steve became Managing Editor of Institutional Investor, then a new magazine for investment professionals that was undergoing rapid expansion, including the launch of its international edition.
In 1980 he became Editor of Financial World, then the only magazine devoted exclusively to the needs of individual investors, tripling circulation and assisting in its sale to new owners. In 1984 he served as start-up Editor in Chief of New York CityBusiness, an award-winning local business tabloid subsequently sold to Crain’s New York Business.
In 1985 Steve began publishing U.S. Investment Report, a twice-monthly market letter that provides stock recommendations and model portfolios to thousands of subscribers worldwide. USIR’s model portfolios have consistently out-performed the market averages since they were begun in 1987. In 1990, he assumed full ownership of USIR through Quickel International Corp., based in New Hope, PA
Steve was portfolio manager and co-general partner of a private investment fund that replicated his newsletter portfolios from 1995 to 2002. Besides running his expanding newsletter operations, he writes articles and columns for other publications and frequently speaks at investment forums and academic institutions.