Investing For Growth
Investing For Growth
(FOOL GLOBAL WIRE) LEXINGTON, Ky. (June 7): Because today's the first Friday of the month, I'll be updating the list of holdings for the Monthly Relative Strength variation. Since there's no crucial company news for the holdings today, I'll use the chance to explain the rollover process for this variation.
Once the new list of all the stocks meeting the IFG criteria is prepared, I take Monday's Investor's Business Daily (which is actually published tomorrow morning) and get the Relative Strength rankings for each stock on the list and then rank them in descending order by RS. (If you're unclear about how the original list of IFG stocks is identified, please turn to Step #7 in our 13 Steps to Investing Foolishly in the Fool's School.)
The next step is to compare the new list of the ten best IFG stocks (based on Relative Strength) to the model's current holdings. Any stocks the model currently holds that have fallen off the new top ten list would be "sold," using Friday's closing price as the basis and figuring a deep-discount commission of $20 for each trade.
The next step is to take all of the sales proceeds, add the cash on hand and divide that amount by the number of new stocks that will be purchased. Any stock that remains in the portfolio from the previous month is simply left alone. You don't rebalance its value when you make your monthly changes.
Then, using the same commission costs, I make the new "purchases," again using the closing prices from Friday's session as the cost basis. I use a mechanical approach to calculating the number of shares to buy. If I have $3,000 to invest in a stock with a price of $56 per share, theoretically I could by 53.57 shares. Since you can't buy fractional shares and you must leave cash to cover spreads and commissions, I simply round that number down and then subtract one. In the example, then, I would actually "buy" 52 shares of the new stock for the model.
In your own real-money portfolio, though, you should use the ask price to calculate how many shares you buy. We use the closing price simply for convenience in our hypothetical models because the historical closing prices are easy to get. The bid and ask prices are virtually impossible to find.
The new list of holdings will be posted in the weekly updates in the IFG Statistics Center, probably sometime Saturday afternoon. Look for the details there and have a Foolish weekend!
Transmitted: 6/7/96 | ||||||||
INVESTING FOR GROWTH MODEL (6/7/96) | ||||||||
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