Intelligent Investor Portfolio model – EUR

In my previous post, I mention I would make available a portfolio model, for information purpose (not investment advice).

I will assume that you have read my “10 rules before investing” post and that you are ready to invest long term.

I called this model the “Intelligent Investor Portfolio – European version”, and I refer as European because the domestic currency is EUR.

Currency is relevant because you must consider it in your portfolio asset, estimate it’s return and the overall standard deviation with foreign currency before you apply the modern portfolio theory (mean-variance analysis) to achieve the proportion-weighted combination of the constituent asset’s.

Inception date is February 29th 2016 and I use a passive management strategy (Buy and hold). Portfolio is rebalanced once a year, with dividends reinvested.

I use ACWI ETF as my benchmark proxy, which is an ETF that seeks to track the investment results of an index composed of large and mid-capitalization developed and emerging market equities.

Since inception, Intelligent Investor Portfolio presents a 28,22% return (excludes taxes and commissions and includes dividends) and a standard deviation of 18,00%.

The Intelligent Investor Portfolio report has an overview chapter, description, composition & performance and risk analysis.

For more information, check Intelligent Investor Portfolio Report.

Keep calm and invest.

Share if you like

António Ramos

Financial Analyst

(CEFA holder)

Share This:

How to invest in the stock market – screen for stocks

In my last post, I wrote about the investment basics and what to do before investing in the stock market.

Now you must select the stocks you intend to invest, to make a well diversified portfolio, minimizing the risk and maximizing your return.

No matter if your strategy is trading or investing long term, you will always need to select your stocks to invest in (or trade).

And there is no way for an inestor to avoid a market research, you must study the companies publicly traded well and look at the financial ratios. They can help you invest wisely and making much more money!

When you are investing in the stock market, you should look at companies financial strength ratios, profitability ratios and valuation ratios.

Some strength ratios:

  • Current Ratio: creditors often compare a firm’s current assets and current liabilities to assess whether the firm has sufficient working capital to meet its short-term needs

 Current Ratio = Current Assets / Current Liabilities

  • Debt-Equity Ratio: used to assess a firm’s leverage

Debt-Equity Ratio = Total Debt / Total Equity

  • Interest Coverage Ratio: assess a firm’s ability to meet its interest obligations by comparing its earnings with its interest expenses

Interest Coverage Ratio = EBIT / Interest Expense

Some profitability ratios:

  • Operating Margin: reveals how much a company earns before interest and taxes from each dollar of sales

Operating Margin = Operating Income / Sales

  • Net Profit Margin: shows the fraction of each dollar in revenues that is available to equity holders after the firm pays interest and taxes

Net Profit Margin = Net Income / Sales

  • Return on Equity: provides a measure of the return that the firm has earned on its past investments

Return on Equity = Net Income / Book Value of Equity

Valuation Ratios (use it to compare with competition and industry)

  • Price-Earnings Ratio: measure that is used to assess whether a stock is over- or undervalued based

P/E Ratio = Market Capitalization / Net Income = Share Price / Earnings per Share

I mention above just a few ratios, but there are much more available.

I recommend you learn more about it. A good book that explains in depth all these financial ratios and much more, and for sure will help you know more about how to invest in the stock market is Corporate Finance (3rd Edition) (Pearson Series in Finance), a must read for an intelligent investor.

If you wish to compare your financial ratios with competitors and the industry, you have available a lot of free information like Damodaran, yahoo finance, google finance and so on.

You can also check finviz to scan for stocks adding your filters.

For education and ilustration purposes, soon I will make available my model of an efficient portfolio using the modern portfolio theory as written in Modern Portfolio Theory and Investment Analysis, available in kindle version Modern Portfolio Theory and Investment Analysis, 9th Edition.

Keep calm and invest.

Share if you like

António Ramos

Financial Analyst

(CEFA holder)

Share This:

How to make money investing

The best way to gain your financial independence is by saving and investing, using time in your favor.

You should not buy stock or any other asset thinking that you are going to wake up in the morning rich. You might just go to a casino, because you are not investing, you are playing.

Quoting Albert Einstein:

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

In my opinion, the best way to achieve the “eighth wonder of the world” is using a long term buy and hold strategy, making an efficient portfolio by maximizing return at the minimum risk.

Your asset allocation will depend on the investor profile, risk tolerance and the investment purpose.

To learn more about the efficient portfolio, I recommend you Modern Portfolio Theory and Investment Analysis, also available in kindle version Modern Portfolio Theory and Investment Analysis, 9th Edition.

I mentioned a passive management stategy (Buy and hold), that means having a well-diversified portfolio (like buying an ETF that replicates the market – like the SP500 index).

Investing this way, you save a lot in research and brokers commissions and you can adjust it to your risk profile by adding bonds.

Studies indicate that a deep research can add you something like 1% on your return, but that is only relevant if you are investing a lot. For example, if you are investing 100.000 € you will be adding 1000€ in your return. If you are investing 500.000.000 your return would increase by 5000.000€.

A performance evaluation on investment funds and pension funds shows that most of these professionals cannot beat the market.

The efficient-market hypothesis is a useful reminder that the average investor cannot expect to beat the market after expenses.

As a result, low-cost vehicles like index-trackers and exchange-traded funds have become more popular. But the mere fact that the market is hard to beat does not make it rational. Analyzing an irrational market is extremely difficult, (…)

The economist, January 8th 2011

The below image shows the return of 100 USD investment on an index

Corporate Finance (3rd Edition) (Pearson Series in Finance)

If you are up to choosing your stocks and making your own research, instead of using ETF that replicates an index, you will have to decide whether to use fundamental or technical analysis.

But if you believe in efficient-market hypothesis, you should presume that all the public information is already reflected in price.
Fundamental analysis focuses on the study of economic and financial variables underlying the value of the company while Technical analysis focuses on the analysis of price patterns.

Because both of them depend from public information, we should presume that both of them do not generate an extraordinary return (alfa).

However, stocks with better performance in the last 6 to 12 month usually have alfa > 0 [momentum effect]

Research Review: Momentum – Jegadeesh & Titman, 1993

posted on October 15th, 2015 by Bellmont Research Team


If you would like to learn more about technical analysis, I recommend Technical Analysis Explained, Fifth Edition: The Successful Investor’s Guide to Spotting Investment Trends and Turning Points (Business Books), also available in kindle version Technical Analysis Explained, Fifth Edition: The Successful Investor’s Guide to Spotting Investment Trends and Turning Points.


Share if you liked it.

Keep calm and invest

António Ramos

Financial Analyst

(CEFA holder)

Share This: