The goal of the Cabot Benjamin Graham Value Investor is to provide you with exceptional stock recommendations using the techniques pioneered by Benjamin Graham. Our second goal, just as important, is to give you the confidence to buy the stocks and the patience to hold them to fruition. If we can achieve these goals, we’re confident that you’ll achieve yours, and together we’ll have a long and prosperous relationship.
Here’s a step-by-step guide to investing with the Cabot Benjamin Graham Value Investor:
1. Organize your portfolio
Commit a percentage or dollar amount of your portfolio to value stocks. You should commit at least enough of your portfolio to accommodate investments in 10 or more of the stocks recommended in the Cabot Benjamin Graham Value Investor.
2. Determine how many value stocks to buy
After determining how much money you will invest in value stocks, you need to determine how many stocks to buy. We recommend 10 to 12 stocks for commitments under $100,000, and 30 to 40 stocks for commitments over $500,000. If your portfolio commitment is between $100,000 and $500,000, you can interpolate to get the approximate number of stocks you should own. Divide your cash investment evenly by the number of stocks, leaving 2% to 5% in cash.
3. Buy stocks
We recommend waiting for your chosen stocks to dip below their suggested buy price before buying. Investors may miss out on a stock or two, but it is better to move on to another stock than to buy a stock with limited potential.
If a stock is selling above its suggested buy price, you should consider placing a limit order with your broker to buy the stock at a limit equal to our suggested price. After purchasing a stock, if the stock falls 10% or more, don’t be alarmed. We recommend that you consider buying additional shares at the lower price.
4. Buy a diversified selection of stocks in equal amounts
Choose stocks to diversify your portfolio as much as possible, limiting your investment in one industry sector to no more than 20%.
5. Commit your funds slowly
We highly recommend dollar-cost averaging into the models. Use a three-month time frame and invest equal amounts each month. For example, if you want to invest in a total of 15 stocks, invest equal dollar amounts in five different stocks in each of the next three months. If there are less than five undervalued stocks available in any month, stretch out the timeframe to four months or even longer. Don’t overweight stocks—it rarely works out well.
6. Monitor your stocks
Our sell targets are three-year objectives, so be ready to hold your stocks for one to three years. In the interim, expect the stocks to go up and down—ride them out. Occasionally, a stock should be sold before it reaches its target sell price; in that case, I will clearly indicate a sell in a Special Bulletin.
7. Sell your stocks
The target holding period for stocks in the Cabot Benjamin Graham Value Investor is from one to three years. When the target sell price is reached, we will alert you with an email Special Bulletin and in the Weekly Update. Special Bulletins are also posted on the Cabot website. If you are ever unsure if you should sell a stock, don’t hesitate to email azmath@cabotwealth.com and we’ll get right back to you.
8. Restock your portfolio
After you have sold a stock, simply replace it with another stock from the current models. If your sale creates excess funds, you can add part of the sale proceeds to one of your smaller holdings to keep your portfolio in balance.
About Benjamin Graham, the Father of Value Investing
Success Stories from the Cabot Benjamin Graham Value Investor