- Use the screeners to select the top-ranked stocks from the Acquirer’s Multiple database. Each screener identifies the 30 best stocks, but you don’t need to hold 30 positions. In general terms, holding more stocks leads to greater diversification, and lower volatility, but is harder to manage and requires more purchases. Fewer stocks reduces the number of purchases, but leads to great volatility, and magnifies the impact on the portfolio of an unexpected event. The larger companies found in the Large Cap Screener have historically generated lower volatility, and lower returns. The smaller companies found in the Small and Micro Cap Screener have historically generated higher absolute returns, but had much greater portfolio volatility. The broadest screener–the All Investable Screener–gives the best balance of return and volatility. Eliminate any stocks you do not want to own for any reason; however, you should hold at least 20 stocks to remain sufficiently diversified.
- It makes sense to consider scaling in, making regular portfolio purchases over a 12-month period, say 2 or 3 per month, or 7 or 8 per quarter.
- Hold winners for one year plus one day to maximize after-tax returns, then sell. If a stock is up, and remains in the screener after one year and one day, hold until it leaves the screener. If a stock is down and remains in the screener, hold. If a stock is down and leaves the screener, sell. You should check the portfolios to see if a rebalance is necessary no less than quarterly.
- Once you have sold a position, rebalance the portfolio into the next best position in the screener that you don’t already hold.
Disclaimer: acquirersmultiple.com is not an investment adviser, brokerage firm, or investment company. “The Acquirer’s Multiple®” is a term used to describe the investment strategy explained in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations. Use of the formula does not guarantee performance or investment success. acquirersmultiple.com is owned in part by Tobias Carlisle.
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