Q1. YOU’RE www.TCVI-24-7.com SO WHAT DOES TCVI-24-7 MEAN?
A1. TCVI Stands for The Christian Value Investor which is the name of the website that serves as the marketing outlet for our flagship Newsletter of the same name and its sister publications, The Christian Utility Investor and The Christian Transportation Investor. The 24-7 simply suggests the site is here all the time to provide results of our model portfolios and information about value investing.
Q2. WHAT IS VALUE INVESTING?
A2. Value Investing is the body of investment principles articulated by Benjamin Graham, a professor at Columbia’s Business School who is often called the father of value investing. Warren Buffett studied under the professor and later worked at his investment firm. Buffett himself explains it best in his article "The Superinvestors of Graham-and-Doddsville." You should read about it at the following link:
Q3. HOW DOES ONE MEASURE THE PERFORMANCE OF THEIR INVESTMENTS?
A3. There are numerous indices that track the performance of the market as a whole, or selected segments of it. The most commonly cited index is undoubtedly the Dow Jones Industrial Average (DJIA). One judges their own investment’s gain (or loss) against that of the index for the market segment their investment most closely resembles over the same time period. Dow Jones has a specialized index for both the Utility and Transportation market segments. The other common indices are the Standard & Poor’s 500, the NASDAQ and the Wilshire 5000. Wikipedia has good articles explaining these. Cut and Paste this link into your browser to start and once you’re on Wikipedia’s site, you can simply search on the names of the other indices.
Q4. THE NOON NEWS SAID THE S&P 500 IS $1,600. IS THAT GOOD OR BAD?
A4. Often used as a punch line, “buy low, sell high” actually is the secret to market success reduced to its simplest terms. The answer to whether any dollar figure is good or bad is that it’s all relative and could be either depending on one’s investment circumstance. It reminds me of a famous quote. Legend has it that when asked what the stock market would do during a particular period, J.P. Morgan responded, “It will fluctuate!” If one had purchased a diversified portfolio at the end of 2012 when the S&P was at about $1400, the $1,600 figure would sound very good. In contrast, the person who had invested in Nov 2013 when the S&P went over $1800 would view the same $1,600 figure as terrible. And one must always remember the cardinal rule of investing that past performance is no guarantee of future results.
Q5. BUT ONE CAN MEASURE AGAINST AN INDEX ONLY AFTER THE FACT. WHAT DOES ONE LOOK FOR BEFORE THEY PICK A PARTICULAR WAY TO INVEST?
A5. Excellent question. If you have money you can afford to lose, but would like to double it in a short period so you could buy that expensive toy you always dreamed of, you seek out a real speculative investment that has a chance of paying off big, but also has significant risk of becoming worthless! That doesn’t fit most of us. We visualize the individual trying to manage his/her IRA or 401k to insure they will be able to retire comfortably, so we publish quarterly, diversified, value-oriented, model portfolios that we hope will fulfill that purpose.
Q6. WHAT EXACTLY DOES DIVERSIFICATION MEAN?
A6. It is hard to beat the old adage that tells us “Don’t put all your eggs in one basket” when trying to explain diversification. The Christian Value Investor’s portfolios have 25 stocks that meet the value criteria and are primarily from the so-called “large cap” segment, believed to be rock-solid. However, if an unexpected catastrophe caused one of the 25 stocks (or 4% of the total) to lose half its value overnight, the portfolio would only suffer a two percent loss as a result. The Utility and Transportation portfolios are similarly diversified but have fewer stocks each, inasmuch as they are selected from a smaller, focused subset of the market and there may not be a larger number that at any moment are considered to meet the value criteria.
Q7. ARE THERE OTHER TECHNIQUES TO BETTER PROTECT ONE FROM LOSS?
A7. Another sound technique is to avoid making all your investments at the same time. Even a stock considered a value will likely decrease in market price if the whole market goes down. A Value Investor does just not buy and hold. Rather, they buy when a stock is undervalued, and liquidate when the stock “catches up” with the market. If all one’s resources are invested on one date, an unexpected downturn can cause a loss that has a long recovery period. By liquidating stock that has made significant gain and reinvesting in current value issues throughout the year, one minimizes the risk of having purchased at the high point. This is why we produce a new model portfolio each quarter. Remember “Buy High, Sell Low” is NOT the formula for success. Quarterly portfolios, maturing after one year provide investment choices spread across the investment cycle’s time line.
Q8. YOU TALK ABOUT RISK. IS THERE AN OBJECTIVE MEASURE OF RISK?
A8. Yes, the Sharpe Ratio is such a measure. It is a mathematical formula named after its creator, Nobel Prize winner William F. Sharpe. It is used to determine how much risk was incurred to achieve a specific investment result. A higher Sharpe ratio is preferable. For a detailed explanation, go to Wikipedia.org and search on Sharpe Ratio. Once again, however, it measures the risk that was involved to obtain a given return and thus is an after-the-fact measure. Nonetheless, since our newsletters use a consistent strategy, subsequent editions will result in similar ratios, and thus can be differentiated from competitors that have riskier, less favorable ratios.
Q9. TCVI SOUNDS GOOD BUT MY FINANCIAL ADVISER SAYS STICK WITH INDEX FUNDS. WHAT IS AN INDEX FUND, AND IS IT A BETTER CHOICE?
A9. An Index Fund is a passively-managed mutual fund that seeks to replicate the market behavior of a stock index such as the S&P 500 by assembling a microcosm of the market within their portfolio. Your adviser is taking the conservative approach consistent with your desire to beat passbook interest rates but without excessive risk. To the extent they replicate the market, their performance generally parallels the market usually within minus 20 to minus 50 basis points (If the fund faithfully mimics the market it always lags due to transaction fees and profit for the administrator). For the Christian, the major objection is the nature of business engaged in by many of the companies within such a portfolio. We say: “Care what your investment does, not just what it earns!”
Q10. WHAT IS A BASIS POINT?
A10. A Basis Point is a 100th of a percentage point. Thus 200 basis points equals 2% and measurement by basis points is most commonly used when expressing the difference between an investment’s gain (or loss) and the corresponding gain (or loss) over the same time period by the index that most closely represents the type of investment being compared. To see an example, click on the FAQ icon above to provide an enlarged view and examine the tabular data. It shows the market value of TCVI’s matured portfolios as a percentage of original investment and the difference between TCVI and the Dow in basis points. Also note how often TCVI has led the Dow Jones Industrial Average versus how often it has lagged.
Q11. WHICH INDEX MOST CLOSELY RESEMBLES THE MAKE UP OF YOUR PORTFOLIOS?
A11. The Dow Jones Industrial Average (DJIA) most closely resembles the make up of The Christian Value Investor’s Model Portfolios and the Newsletter publishes tracking data of its performance compared to both the DJIA and Standard and Poor’s 500. The sister newsletters are tracked in comparison to the Dow Jones Utility Average, and the Dow Jones Transportation Average as well as the DJIA.
Q12. WHAT SETS TCVI APART FROM OTHER INVESTMENT NEWSLETTERS?
A12. We believe that the following online article does an excellent job of answering that question:
Q13. WHAT IS THE BEST WAY TO USE TCVI FOR MY RETIREMENT PLANNING?
Q13. Neither the parent company Faithful Servant LLC nor The Christian Value Investor or its sister publications are registered investment advisers, nor do they provide individualized advice. Only you can determine what course is best for you, perhaps with the assistance of an investment professional. It is our belief, however, that most people would be well served by using TCVI Model Portfolios for that part of their overall portfolio to be allocated to stocks or stock-based mutual funds, to spread their investment over the four quarterly portfolios as each is published and to reinvest earnings from maturing portfolios in the follow-on portfolio for that quarter.