We believe that the answer is a resounding “Yes!” Manifest, even.
Our mission? Simplify investing. Transform the experience of individual investors into something less mysterious, less stressful and more successful. We believe that the most important characteristics of any investment are the expected returns for a long term horizon and its quality, or investment grade. We believe that these two characteristics can be applied to any stock or fund (portfolio) and that they form the foundation of understanding and optimizing portfolio design and management.
Why Manifest Investing? Because the biggest challenge and inhibitor confronting the average individual investor is the confusion and fear that most people feel when faced with selecting and managing a portfolio of investments. We’re treated to agonizing images of “investors” on television attempting a root canal or brain surgery on themselves. The message from Wall Street is painfully clear: You can’t do this on your own.
Don’t believe it.
Our choice of MANIFEST lies in its very definition: to show or demonstrate plainly; a list… according to owner and location.
We know that most things in life become easier when we understand them better. While working to remove the mystery and fear (often with groups of friends and colleagues) we discover that the challenge is not nearly as difficult nor intimidating as some would like us to believe. Whether you choose to work with an investment professional, financial planner or do-it-yourself, building a better (but rapid) understanding of the alternatives will improve your investing experience.
You can do this.
You can be an effective investor. We have witnessed this first hand in our work with groups of employees as they come to understand the choices facing them in their 401(k) plans. Yes, the decisions are still ultimately their own, but the understanding provides a degree of comfort and confidence in their quest to make effective choices.
A manifest can also be a list. People like lists. We believe a great deal may be learned from lists. Even when investing in mutual funds, it’s important to know what you own and why you own it. Every day, the stock market chaos and noise can obscure the reality that effective long-term investing means that we OWN a stake in our enterprises. This is even true with our mutual funds. What decisions has the fund manager made on our behalf? What do we own? Why?
A Foundation of Simplicity
The behavior of “average investors” provides one of the most puzzling riddles in the universe. How many pairs of shoes are “enough” for my wife and daughter is another riddle, for another day. It’s all about shopping.
Picture this. You and a bunch of your neighbors are sitting around the house talking about buying your next car. Collectively, as a well-formed herd, you and your neighbors head to the local dealership to all shop at the same time at the same place. You lead the way. A salesman snares you and you ask, “Which car has been getting the most attention with the largest increases in price lately? My friends and I want to fight over it and continue to drive up the price.” Isn’t this a dream scenario for the salesperson?
Sound a little far-fetched?
The sad part is that it’s actually a fairly precise description of stock market mania lived out daily by the majority of the professional herd and “average investors” around the world.
We need a better perspective.
The answer lies in understanding just two things about any potential investment: (1) quality and (2) the returns that we might reasonably expect to achieve over the long term.
The solution resides in seeking a quiet moment to build reasonable expectations about the future of your investment. We must learn to ignore the noise and focus on long-term potential.
Quality: A Measure of Excellence
When it comes to strategic long-term investing, quality matters. It’s important that we understand and respect quality as we study and select our investments.
Manifest Investing builds a quality rating, a score from 0-to-100, for companies in our database. We’ll explore the details later, but in a nut shell, we examine the relative growth characteristics, relative profitability, financial strength and earnings stability and generate a quality rating, or score. The growth and profitability characteristics are scored relative to their industry peers. The highest possible rating is 100. We find that the best companies (those in the top 20% of the database) achieve quality ratings of 65 or greater. You will see this color-coded in the newsletter and web site with a blue quality score. Think blue chips. Good companies, those ranking in the next 20% of all companies are color coded green with quality ratings between 55 and 65.
The lowest quality ratings (less than 35) are coded in red and should generally be avoided.
You probably won’t hunt for your next car with all of your neighbors in tow and you probably won’t walk in and ask to see the cars with the worst reliability. Shopping for stocks and promising mutual funds is no different. If we’re to own them for a few years or decades (should conditions warrant) we want to identify the best. You may have used Consumer Reports ratings to support your search for that last automobile purchase. This is no different. Quality matters.
We want the best and we want to know when they’re on sale.
Return Forecasts: When is the Price Right?
When are stocks on sale? It depends on the return forecast.
How does the stock compare to the average return right? How does your stock’s return forecast compare to other holdings and the overall portfolio?
This, too, is a subject we’ll examine more closely in subsequent issues but the condensed explanation is that we apply a long-term sales growth forecast, an estimated net margin and a projected average P/E to generate a projected price expectation. The projected annual return (PAR) is the sum of the price appreciation from the current price and the expected impact of dividends.
We believe that an emphasis on quality and the expected returns for the stocks we evaluate is a great place to start.
Can investing really be this simple? Absolutely. Welcome. We hope you enjoy your investing experience.