Core fore portfolios information form word revised
1. Core-Fore Portfolios
Core-Fore Portfolios
Extreme Buy-and-Hold Investing
16 Companies
4 Micro, Small, Mid and Large Cap Stocks
Zero Turnover
Reduce Taxes / Fees / Poor Selling Decisions
Will Ashworth
Ashworth Information.com
washworth@ashworthinformation.com
(416) 486-1441 / (905) 840-8484
2. Core-Fore Portfolios
What Is It?
It’s extreme buy-and-hold investing.
Stocks held permanently until taken private or losing 100% of its value. There’s virtually no
turnover.
How Does It Work?
Investors construct 16-stock, fully diversified portfolios across many sectors and market caps.
Each portfolio is comprised of four micro caps, small caps, mid caps and large caps.
US Stocks - Market Cap Criteria Canadian Stocks – Market Cap Criteria
Micro Caps: $50 million to $300 million Micro Caps: $25 million to $150 million
Small Caps: $300 million to $2 billion Small Caps: $150 million to $1 billion
Mid Caps: $2 billion to $10 billion Mid Caps: $1 billion to $5 billion
Large Caps: $10 billion or higher Large Caps: $5 billion or higher
Investors allocate an equal amount to all 16 stocks. The suggested minimum is $1,000 each.
Any additional investments to the portfolio go to the four poorest performers from the previous
year. For example, if you invested $16,000 in 2010 and wanted to add $4,000 in 2011, you’d
invest $1,000 in each of the portfolio’s four worst performing stocks in 2010.
On average, 3 to 4 stocks in every 100 cease trading each year. At most, the investor’s carefully
constructed portfolio would require one replacement per year; it would be 8 to 10 years before
half the 16 stocks needed replacing.
What Are The Costs?
Stock-trading commissions and capital gains taxes are two of the biggest threats to investment
returns. Core-Fore Portfolios aim to minimize these costs by reducing overall activity. Including
the initial purchases and subsequent replacement of stocks no longer trading, investors should
expect trading commissions (based on $10 per trade) no more than $500 to $600 over eight years
with minimal capital gains taxes. Portfolios that significantly outperform expectations might
require a return of capital, in which case additional trading commissions and capital gains taxes
are applicable.
3. Core-Fore Portfolios
Stock Selection
No process is perfect. That’s why it’s crucial to do your homework prior to buying your 16
stocks. Obviously, you want to own good companies but that doesn’t mean you shouldn’t take
some chances. Core Fore Portfolio One, for instance, holds Cray Inc. (Nasdaq:CRAY), the high-
performance computing company. Cray’s barely making a profit yet I picked the micro-cap stock
in my August 21, 2009, article. It’s yet to make money for the portfolio and that’s just fine.
Core-Fore Portfolios are about teamwork. Like a good sports team, you never quite know who
the star performers will be on any given day, only that someone will step up to the plate. Cray
will someday be that surprise performer when the portfolio likely needs it the most.
Industry professionals recommend that investors remove all emotions from the buying and
selling of stocks. In my experience, the only time emotion is absent from stock picking is
generally when first buying shares of a company. Sure, we sometimes buy stocks because we
like the product or service, but astute investors usually have also determined that the company
makes money and should continue to do so in the immediate future. Beyond this period, it’s
impossible to know.
The internet provides all sorts of rules for selling stocks. Here’s my favourite from analysts and
money managers:
“The company’s story and business has changed and our original reason for owning
the stock no longer exists.”
This is an emotional response whereas the decision to buy in the first place was a critical thought
free of any bias. There are many examples where investors sold stocks too soon because of
temporarily bad news. A good company that falls on hard times doesn’t necessarily become
bankrupt overnight just as a bankrupt company doesn’t become a good one overnight.
As for my own stock selection, I generally look for profitable companies with strong balance
sheets and free cash flow. I have no cardinal rules, however, when picking stocks except that the
business-model makes sense. The rest usually takes care of itself.
4. Core-Fore Portfolios
Frequently Asked Questions
Why 16 Stocks
Portfolios between 10 and 20 stocks seem to do the best over extended periods. Because you
pick four stocks (one from each cap) at a time, 16 makes the most sense, as it’s right in the
middle.
What Happens When A Stock Is Taken Private Or Loses 100% Of Its Value
Generally, three examples come into play.
The first is when a company acquires your stock for cash. If you originally invested $1,000 and
received $1,200 in the buyout, you’d reinvest the original $1,000 in another stock of the same
market cap, even when the gain is substantial changing its market cap. Like a sports team, you
wouldn’t replace a quarterback with a defensive lineman.
The second example is when a company acquires your stock using its own shares. In this
instance, you let it ride, much like the ING Corporate Leaders Trust, which got its start in 1935
and today holds just 21 stocks, all descendents of the original 30 companies.
The third example is when a stock loses 100% of its value. In this instance, either you invest
$1,000 of cash in a new stock with the same market cap or you would sell a small amount from
the remaining 15 stocks so that the weightings remain intact.
It seems complicated but it’s not.
How Do You Add Or Remove Funds
If you are adding funds, you should contribute once a year, an amount equal to 1/4 your initial
investment. Therefore, if you invest $16,000 ($1,000 per stock) in a portfolio today, the next year
you’ve saved $4,000, you’d add that amount and so on. If on the other hand, you needed funds,
you’d sell a small amount of the four best performing stocks. This would trigger a small capital
gain. Naturally, if you don’t need to sell, you shouldn’t. The fewer moves the better.
5. Core-Fore Portfolios
What Happens When There’s Bad News
This is extreme buy-and-hold investing. Only under the three previous examples would you sell.
What Happens When You Have A Ten-Bagger
In the event a stock achieves abnormally high returns, investors could realize profits by
rebalancing the portfolio as described in the section previously about adding and removing
funds.
For example, if you’ve invested $16,000 in 16 stocks and one of them increases 1,000% for a
paper-profit of $10,000, you can realize this amount by selling a small portion of the four best
performing stocks.
Who Should Use Core-Fore Portfolios
Investors who want better investment returns through reduced fees, lower taxes and fewer poor
selling decisions. It’s passive-active investment management and at its core, Extreme Buy-and-
Hold Investing.