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Adapting The Bowser Game Plan

UNDERSTANDING THE UNDERLYING PHILOSOPHY TO HELP YOUR PORTFOLIO Aside from the in-depth, top-of-the-line analysis that The Bowser Report provides, there is another reason why subscribers have high returns: the Bowser Game Plan. This investment strategy has helped subscribers remain disciplined and realize profits for over forty years. For that reason, we always send new subscribers an explanation of the plan in some form. Still, we get a lot of questions and concerns. Sticking to a plan is essential for every investor. To succeed, you must either bring your own plan to the table or apply The Bowser Report’s. And, whatever the plan, it must align with your investment objectives, which vary from investor to investor. For example, some investors begin with a very limited amount of capital, restricting the size of their positions and their number of holdings. Therefore, these investors must develop or adapt plans to suit their needs and avoid losing money. While the Game Plan helps maximize profits and minimize risks for many subscribers, it is vital to understand the philosophy behind the strategy to better apply it directly or adapt its core strategies to fit your unique investment goals. BREAKING DOWN THE BOWSER GAME PLAN 1. DO NOT PAY more than $3/share for a stock. This is a fairly simple rule that we have always stuck to at The Bowser Report. Certain stocks are great buying opportunities at under $3 per share. Prior to publishing the first newsletter, founder Max Bowser noticed a trend that once a stock broke above the $3 threshold, it typically continued appreciating if the company’s fundamentals remained strong. The likely reason for this is that many institutions start taking positions when a stock surpasses $5 per share. Buying companies before institutional interest occurs increases the likelihood that fundamentally-sound, low-priced stocks will provide you with higher returns. 2. CREATE A PORTFOLIO of 12 to 18 stocks. Diversification is important. Diversification is essential when it comes to managing any portfolio. Most investors believe that investing in different stocks is how to diversify and minimize risk. However, this overlooks the fact that some of these stocks are within the same sectors, industries and even have similar sources of revenue. That’s why it’s always good to review our extensive analysis to ensure that our most recent stock pick doesn’t overlap with any of your current holdings. Another factor to consider when diversifying is how commissions can reduce your capital. A great free online brokerage is Robinhood, but if you use another broker, try not to over-diversify your portfolio. A simple rule of thumb is that if the commissions of buying and selling twelve stocks ($240 for the average broker) is more than 5% of your account value, then you should consider a smaller number of holdings. Regardless, we have found that holding twelve to eighteen stocks hedges against any potential big losses. The more stocks you own, the greater your chances of holding a winner, which will more than make up for the losers. 3. DO NOT SELL when a stock goes above $3/share and is moved to Page 5. Because I am also a day trader, the foundation of this rule is the backbone to my personal trading strategy. Never add to your losers, just your winners. That being said, a “winner” for The Bowser Report is a stock surpassing a share price of $3. By selling every time a stock breaks out of that price range, you are cutting your winner loose before it even has a chance to make you money. As you will later see, we emphasize taking your profits when your holdings double. If you take your profits as soon as it breaks $3, most of the time you’ll never give it the chance to double! 4. DO NOT SELL when a stock moves to a lower category. Just because a company isn’t performing well in the short term does not mean that it doesn’t have potential upside. If you are sufficiently diversified, you will have no problem with underperformers. The Bowser Report tries to focus on picking stocks that are going to be around for the long haul. That is why we focus on sales and earnings forming long-term trends, as opposed to just looking at the most recent quarterly results. By doing this, we are finding companies that will survive through short-term fluctuations in sales and earnings. All in all, try to avoid selling if you don’t have sound logic behind the decision. If you are not sure whether or not to sell, you can always refer to the next part of the Game Plan: the selling plan. 5. SELLING PLAN: Sell half of your holdings when the stock doubles from your purchase price. Sell the remainder after the stock drops 25% from its most recent high. If the stock drops 50% without doubling, sell all shares. This is easily the most important rule of the Bowser Game Plan. It highlights when to take profits and when to cut losses. Better yet, it has proven to work for Bowser subscribers for decades. Still, we’ve had subscribers deviate from the selling plan. Those who are successful outside of our selling plan find their success in thoroughly developed plans based on their own investment objectives. Investors deviating from the plan generally have vast investing experience, while individuals with little to no investing experience should stick to the Bowser Game Plan. An example of someone deviating would be an experienced investor who chooses to sell all his or her shares at one time as opposed to sizing out (i.e. selling half at one time and the other half later). There are countless other modifications to our selling plan, but those with no experience in developing a strict selling plan and sticking to it should use ours as a tried and true method. 6. RECORD proceeds from sales. It is important to always record your profits and losses in order to track performance. If you are only ever tracking your current holdings, you lose sight of where your portfolio began, and the profits it’s generated. Better yet, tracking buys and sells allows you to analyze your entries and exits. It also gives you the ability to see how well your plan is doing, and how well you are sticking with it. 7. PORTFOLIO EVALUATION = current value of portfolio + proceeds from sales. The same concept for #6 also applies to this rule. Value your portfolio and track your performance in order to better visualize your portfolio’s growth and your growth as an investor. ADAPTING THE GAME PLAN The big takeaway from breaking down the Bowser Game Plan is that disciplined investing generates profits. The Game Plan has been developed and fine-tuned over decades as a successful investment strategy. Those who are unfamiliar with strategy development or who tend to stray from self-developed strategies should absolutely stick to the rules of the Bowser Game Plan. However, no one situation is alike. Investment objectives vary depending on account size, risk tolerance, brokerage and other factors. That said, the Game Plan can and should be tweaked to suit your situation. Just make sure to do so in a regimented way! We touched briefly on brokerages in this article. We have our list of those we’ve had positive dealings within the past. Selecting which one is right for you is a whole other article in itself, but as long as the brokerage has stop orders, minimal commissions and good customer service, you should be fine. Overall, we would like to emphasize there is a need to have a structured game plan and to remain disciplined. If the Bowser Game Plan doesn’t fit your objectives, feel free to modify it in a structured and calculated manner if you have experience and are 100% comfortable doing so.

Popularity And Price Increase For ‘Low Vol’ Funds

“Low volatility” funds have surged in popularity recently as investors have poured nearly $10 billion into them so far in 2016, which has significantly increased their price. At the end of 2015, one such “low vol” fund (i.e., specializing in stocks that fluctuate less than the broader market) had a P/E ratio just above the market as a whole. By the end of April 2016, it was “nearly 10% more expensive than the market average,” reports a recent Wall Street Journal blog piece. Nardin Baker of Guggenheim Partners Asset Management, who has written on and managed such funds for decades, says that low volatility stocks have outperformed the market by an average of about 1 percentage point annual with roughly 30% less risk. Dan Draper, who manages a low volatility fund for Invesco Powershares, says that investors pay less in bull markets for stocks that don’t make big moves, which made them cheap. “But can unpopular investments continue outperforming after they become popular?” the article asks. Andrew Ang of BlackRock says that potential overvaluation is “a valid concern” and “excessive crowding of any strategy should send up a red flag of warning,” but that these stocks are not currently “at extreme values by any standard.” Although Baker says “anybody who’s in low vol right now, they’re not going to be hurt,”but Dave Nadig of FactSet says that “if everybody’s chasing the same stocks, eventually they will no longer be cheap and returns will regress to the mean.” Ang says investors should not “go into low vol to outperform the market,” but “to reduce your risk.”

Hedge Funds – Misunderstood, But Still Not Worth It

Cliff Asness has a wonderful new piece on Bloomberg View discussing hedge funds. He basically argues that: Hedge fund criticism has been unfair largely due to false benchmarking. Hedge funds should hedge more. Hedge funds should charge lower fees. These are fair and balanced statements. And they’re worth exploring a bit more. The first point is dead on. The media loves to compare everything to the S&P 500, which is ridiculous. The S&P 500 is a domestic slice of 500 companies in a global sea of millions of companies. It neither represents “the stock market”, the “global stock market” nor anything remotely close to “the financial markets”. I have pleaded with people at times to stop comparing everything to the S&P 500. But no one listens to me, so it’s not surprising that this continues. 1 Hedge funds are treated particularly unfairly here, because, as Cliff notes, they’re not even net long stocks on average. The average hedge fund is only about 40% net long stocks. The portfolio is also comprised of bonds and alternatives, making classification difficult to average out. But the point is that the S&P 500 is absolutely not a good comparison. 2 I would argue that the proper benchmark for all active managers is the Global Financial Asset Portfolio , which is the true benchmark for anyone who actively deviates from global cap weighting (which is everyone, by the way). The second point is also clearly true, as hedge funds have become increasingly correlated to the S&P 500 over time. Differentiation is what makes alternative asset classes valuable. Unfortunately, you don’t get much differentiation in hedge funds, and I don’t think this can reasonably change as the industry grows, because, as assets under management grow, the managers will inevitably start to look similar, since there are only so many assets that can be held at the same time. The paradox of active management is that the more active everyone becomes, the more all this activity starts to look like the same thing (minus taxes and fees). The last one is my major point of contention. A globally allocated 40/60 stock/bond portfolio earned about 7.5% per year over the last 40 years. And this was in an era when that 60% bond piece averaged about 6.3% per year. Those days are long gone. I think it’s safe to assume that balanced portfolios will generate lower returns simply due to the fact that the bonds cannot generate the same returns in a 0% interest rate environment. Either that, or the stock piece will probably expose the portfolio to more risk, resulting in similar but riskier returns, on average. I’ve discussed this in some detail, and we even have some historical precedent for this when bonds generated about 2.5% returns from 1940-1980 during a period of low and rising rates. So, the question becomes: In a world of low returns, how can hedge funds justify charging something like 2 & 20, which cuts the total return by almost 50% assuming benchmark returns? Hedge funds have a huge hurdle to overcome on the fee side, and the arithmetic of the markets shows us that they can’t all do it. That arithmetic is clearly coming into play in an environment where aggregate returns have been fairly weak. At the same time, many people clearly benefit from having an investment manager. Vanguard has shown that a good advisor/manager can be worth as much as 3% per year (which I suspect is high), and the average investor has been shown to do far worse than they do when someone like an advisor consistently slaps their hand away from making persistent changes. The value-add of a manager is largely subjective and always personal, but I have a hard time believing people should pay more for an asset manager than they do for doctors, accountants, lawyers, etc. In my mind, portfolio managers and advisors are more like personal trainers – they’re a luxury for people who know they’re not knowledgeable or disciplined enough to build and maintain a proper plan. But personal trainers shouldn’t cost you an arm and a leg. I like Cliff’s points, and there’s some good takeaways in there. But I still think point three is really difficult to overcome. Hedge funds simply charge too much. In a world where you can now mimic a hedge fund index for the cost of 0.75% , it’s very hard to imagine that there’s any rationale for fees being higher than that, on average. And I suspect that, like most high-fee active managers, these sorts of funds won’t benefit investors in the long run anyhow. 3 1 – This is not an entirely true statement. My wife listens to me on rare occasion, but has good reason to ignore most of what I say, since it mostly involves rants about things like quantitative easing and other things almost no one cares about. My dog listens to me roughly 90% of the time, though she selectively ignores me, such as late last night when she got sprayed in the face by a skunk because she did not properly respond to my commands. My chickens do not listen to me at all. I am not sure if it’s because they are geniuses or idiots. Probably geniuses, as they’ve clearly evolved to be unable to hear the Cullen Roche voice. By the way, if you’re still reading this, you should probably be questioning your own evolutionary development. 2 – Part of what’s exacerbated this problem is that Warren Buffett made a public bet with some hedge fund managers who decided it was smart to benchmark their performance to the S&P 500 on a nominal basis. I can only assume that Buffett drugged them before getting them to agree to this deal, since only someone on drugs would benchmark hedge funds to the nominal return of the S&P 500. 3 – Yes, I know this is not a perfect hedge fund replicator, but it’s close enough.