Expert: Paul Henneman - 3/6/2006

Question
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Followup To
Question -
Paul:

I don't understand what methodology is being used to craft the ValuEngine Newsletter 15-stock portfolio.

Can you explain in more detail ...without giving away any secrets of course... how the portfolio is constructed ?

Is Eric Stokes using a modified Market Neutral Strategy ?

Does a Black Box select the stocks and he reviews ?

Thanks for your reply.

Art
Answer -
Art,
  Thank you for your question! I would be happy to discuss the newsletter strategy.
   Eric Stokes is the editor, and he worked with ValuEngine's  research team extensively to create the strategy that would fit the individual investors needs. The results were this: The strategy uses ValuEngine's fair market valuation model. This is a computer model that looks at dozens of pieces of fundamental data on thousands of companies. It is not a static model and is semi-intelligent in the way that it uses and relates each data point. The result is a model that is predictive across all sectors and in both bull and bear markets. Eric selected a 15 stock portfolio, so each month ValuEngine runs a screen to find the 15 most undervalued stocks in our database. The results are diversified among sector, so we take one stock per the 11 sectors we track, plus the last four stocks from the four  most favorable sectors. We have a mimimum market cap limit of just over a billion, so any small cap stocks are eliminated. Eric then writes up his short analysis for each stock. Each month we run this, and about half the stocks change, so there are usually 7 or 8 stocks to trade in each new issue.
   More about the ValuEngine Valuation model can be found at these links:

http://www.valuengine.com/page?p=1
http://www.valuengine.com/NLSubscribeInfo
http://www.valuengine.com/NLPerformance

I hope this helps! Please do not hesitate to follow up with me if I can be of any additional service.

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEInstitutional.com
www.VEReports.com

Paul:

What is the best way to begin ?

Buy all 15 from the monthly letter, or buy just the new 7 or 8 stocks and continue to add as changes are made until I have a full basket ?

What gets a stock kicked out of the portfolio ?

Thanks,

Art


Answer
Art,
  Thank you for the follow up! Yes, I would begin by puchasing all 15 stocks. Then each month when the newsletter comes out, you simply sell the 6 or 7 stocks that are listed, and replace them with the new companies in the portfolio.
  The next issue will be that the next issue comes out in five days, on or about the 15th of the month. So I would wait for this next issue to come out, then buy the fifteen stocks listed.
   A stock is eliminated from the portfolio if it drops in its valuation significantly. In other words, each month the portfolio is readjusted so that it holds the top 15 stocks in terms of undervaluation out of the 4,500 companies that we cover. There is a market cap limit, so if the market cap is less than about a billion we do not include the stock and go to the next one.
   I hope that this helps! Please do not hesitate to follow up with me if I can be of any further service!

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEInstitutional.com
www.VEReports.com