In last week’s column, I wrote how Dr. Weiss is very conservative. And he is concerned about the global debt crisis, the looming fiscal cliff, and the stock market as a whole.
It’s only natural then that he insists I faithfully adhere to the conservative Ratings he and I developed over a decade ago when managing his money in the Weiss Million-Dollar Ratings Portfolio.
So let me give you a quick overview of how the Ratings Model works in challenging times like these.
My first step in managing the Portfolio is …
Avoiding the Garbage —
The Lowest Rated Stocks That Are Most Vulnerable
For example, right now, of over 4,400 stocks Rated by the Ratings Model, close to a quarter of them are too dangerous for you to own (rated “sell”).
This is based on the Ratings Model’s award-winning statistical criteria, which value solidity over flash, and can point us in right direction in the event better times are perceived ahead.
In the current environment, this means we need to be very careful which stocks populate the Portfolio.
|I avoid the high-flying stocks that excite investors at the onset, but leave them disappointed in the end.|
I want stocks with Ratings most likely to improve more than average. These often become some of the best-performers. They are the ones with solid balance sheets and other strong fundamentals setting them apart from the fly-by-night types of stocks — the ones with high risk-reward potential that excite investors so much, but end in disappoint.
My second step is …
Picking the Most Promising Sectors
I do this by analyzing the Model’s results over time. My analysis will directly influence which sectors I want to use for Martin’s retirement money. Then as events in the global economy and the market change I will adjust the Portfolio’s allocation based on what the Ratings tell me.
That means sometimes I may overweight a sector giving it a higher percentage than in the S&P 500 Index. Or I may underweight it allocating a lower percentage than in the Index.
The last step in my process involves …
Timing the Purchase
The Ratings Model continues steadfastly bullish — despite some abnormal volatility among the different sector and industry groups. However, I typically like to avoid choppy markets. Therefore, I’ve sat out from making new commitments post-election.
My caution about the post-election unwind of wrong-headed, politically-based bets has passed. And with it so has the volatility readings we’ve seen over the past couple of weeks. In other words, I think it’s safe to get back into stocks without fear of some large, bad bets unwinding that could whipsaw the market.
I’ve used this pullback to strengthen my Portfolio’s positions in some high-conviction stocks, and bolster favored positions in high- and up-and-coming-Rated stocks. And I’m ready to put more money towards those Buy-Rated stocks when the Ratings Model tells me the time is right.
My Overall Read on the Market
The fundamentals that stock market analysts care about have actually come in OK for companies during third-quarter reporting season. There was a distinct weakness in revenue growth countered by companies’ abilities to cut costs and improve margins, beating earnings expectations.
It’s notable that cost-cutting measures are still having such a positive impact. It tells you that despite difficult times, company managers are keeping their eyes on the ball to serve shareholders’ interests.
I think that the upcoming rally will be sparked when pessimism about the fiscal cliff fades away. But concern over the worst-case scenario may keep the market cautious, too. That’s why this is a great time for me to re-position, and concentrate the Weiss Million-Dollar Ratings Portfolio on aggressive stocks before the market heads upward.