"Buy low, sell high" is the traditional advice to those investing in the stock market. Perhaps all too often, investors go against this advice. They buy a "hot" stock whose price is soaring, or they panic and sell stock as its price begins to drop.
Los Altos Hills resident Ron Schilling has developed an investing system called the Intelligent Investor, which he has recently posted on a Web site. He said his system establishes a logical, consistent method an investor can use to select stocks for his or her portfolio. It enables the individual investor to communicate more effectively with a financial professional, such as a stockbroker.
"It's very painful at times to follow this advice, (but) it's the kind of advice that overcomes the tendency to 'sell low,'" Schilling said. "It forces you to think about doing the right thing."
About five years ago, Schilling, who was trained as an electrical engineer and had been an executive in several large, high-tech corporations for 37 years before becoming an independent consultant in 1992, began working with Bryan Brown, chief financial officer for S.A. Funding Group, to polish his ideas for developing an investment methodology. "He wanted someone who knew the (financial) industry. I would point him in the right direction," Brown said, crediting Schilling with most of the Intelligent Investor concepts.
Schilling has chosen five factors he wants his stockbroker to use in evaluating investment decisions: financial analysts' opinions; Standard and Poor ratings, which combine growth and stability ratings; value line timing, which measures a company's relative market performance expected in the year ahead; earnings growth rate, a projection of the average rate of earnings growth over the next five years; and the value factor, a ratio form of comparison between the earnings growth ratio and the price to earnings ratio. Each week, Schilling's broker sends him a report on his stock holdings, giving him an evaluation of his present holdings and possible new investments based on the five combined factors. "It saves so much time (and converts) data into information," Schilling said. "Data is very confusing. Information is very meaningful."
An investor can choose any factors on which to base investment decisions, Schilling said, but to be useful, these factors should be based on information that is easily accessible, understandable, meaningful and significantly variable.
The Web site address for the Intelligent Investor is www.theintelligentinvestor.com.