It’s a hard time to invest.
Markets are falling, start-up IPOs have fallen up to 90%, crypto investors have been wiped out, and profit warnings are popping up left and right.
You may also have the feeling that investing at the moment is like walking through a minefield. You never know if are buying something that falls 30 to 40% next week.
We are starting the Crash Portfolio
And in spite of this we are (very selectively) starting a Crash Portfolio with the August 2022 issue of the Quant Value Newsletter.
This is after the very successful Corona Crash portfolio we started in April 2020. The 26 companies we recommended had an average return of 56.4%.
Why start buying now?
Why start investing now you may be thinking. The main reason is cheap high-quality companies.
I admit that we haven’t seen a complete selloff with markets falling 10% or more in a day but that doesn’t mean that a lot of investors are not losing their nerves and selling stocks because they just want to get out.
This is especially true for small companies where there are not a lot of buyers lined up.
These companies can of course go down more. But if they are already down a lot and are already undervalued how much further can they fall?
No one knows and as you know no one rings the bell at the bottom of the market. So, at some point we have to have the courage to start buying.
In the Crash Portfolio we are recommending the most undervalued high-quality companies with a strong balance sheet we can find.
You can read exactly how we find these companies in this article: How to find great investments when the market crashes scroll down to the part called How to find undervalued quality companies.
To find ideas we are going to use the following two valuation indicators:
Value Composite Two
Value Composite Two (VC2) is a combined valuation indicator that combines the following valuation ratios into a single valuation indicator:
VC2 is a great valuation ratio to use as it lets you find undervalued companies from different valuation angles . For example book value, cash flow, net profit and operating profit.
Qi Value
Qi Value is also a ranking value that also uses a combination of the best valuation ratios we have tested.
It ranks the whole universe of companies in the screener using the following four valuation ratios:
The main difference between Qi Value and VC2 is the Price to Book ratio. VC2 includes price to book and Qi Value includes the Liquidity Qi ratio.
Using the two ratios to find cheap companies is only half of what we are doing.
We also make sure that the companies we recommend have the financial strength to survive a possible slowdown after a market crash.
To do this we use the following ratios:
Conservative position sizes
No one knows if these companies can go any lower and by how much.
That is why we recommend that you buy smaller positions, about 1% of your total portfolio.
And if you want to be more careful buy your investment in small positions over time. For example, 33% of the position now, 33% in a month and 33% in another month’s time.
Strict trailing stop loss
Also, because we do not know how low markets can go are following a STRICT trailing stop loss of 20% on all companies.
One year holding period
All recommendations will be sold after a year if they don’t fit the quality cheap strategy any more.
This content was originally published here.
