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1. Does the number of stocks in the portfolio remain fixed or does it vary with time?
The NorthStar StockCompass portfolio generally varies between 20 and 30 stocks. This number of holdings is optimized to keep volatility close to that of the broad market. That is, the volatility level is similar to what you would experience holding an index fund that tracks the S&P 500.
2. Doesn't it take a lot of time to manage a stock portfolio of 30 companies, particularly if you're trading every week?
No, actually it does not. Thanks to innovative on-line brokerages (e.g., FOLIOfn and Interactive Brokers), it takes surprising little time - ~10 minutes once a week. All weekly buy and sell orders can be submitted at the same time with one combined order, rather than placing an individual market order for each stock. Furthermore, trade orders can be submitted whenever you like so trading doesn't interfere with your job or family time.
3. Isn't it expensive to trade so frequently?
No, it is not expensive if you use a cost-effective broker. There are several brokerages that allow investors to execute large numbers of trades each month for a very low price. For example, the Folio Unlimited Plan at FOLIOfn provides unlimited trading for only $290/yr.
4. Is there a long-term contractual obligation for NorthStar Capital Advisors services or any funds I invest in?
No. NorthStar Capital Advisors requires 30-days written notice for termination of service. The investments we utilize for our clients can be sold without penalty or deferred sales charges.
5. How much money do I need to get started?
There is no minimum investment but it is usually prudent to keep trading costs to a small fraction of your invested capital. An investment of $39,500 would hold fees to 2% of your capital assuming you pay a NorthStar StockCompass subscription fee of $499/yr and a brokerage fee of $290/yr. On the other hand, a smaller initial investment can be justified since NorthStar StockCompass typically outperforms the broad market. For example, an initial investment of $10,000 in 2006 would have generated $4,280 in gross profit, easily covering the subscription and brokerage costs.
6. How should I initially setup my portfolio?
Buy all stocks listed in the most recent issue of the NorthStar StockCompass allocating your portfolio capital based on the target weights accompanying each stock. For example, if you are investing $30,000 and the target weight for a recommended stock is 3%, you would buy $900 of that stock ($30,000 * 3%/100 equals $900).
7. How should capital be distributed among the stocks in the model portfolio?
Our model is based on weighting each of the stocks by a recommended amount.
8. Do I need to rebalance the portfolio each week?
Yes, we rebalance all positions each week when the portfolio membership and target weights are updated.
9. Do you use specific price action points to indicate when to buy and sell a stock?
No. Unlike some stock selection services, our strategy does not use price levels as indicators of when to buy and when to sell a particular stock. Recommendations are issued each week. A security is added to our portfolio once it passes a rigorous quantitative analysis of its fundamentals. It is subsequently removed if it no longer meets our selection criteria or a stronger stock is identified. Our market-beating methodology is predicated on holding the entire portfolio of recommended stocks. Our research demonstrates that stocks in our portfolio should be bought and sold on the first market day following the release of our recommendations for optimum performance. However, a delay of a day or two of trading does not have a significant impact on returns.
10. Do I need to hold all of the stocks in the NorthStar StockCompass portfolio? What if I only want to use a smaller number of stocks?
The performance statistics and risk profile reported on our website for the NorthStar StockCompass are based on holding the entire portfolio. Holding a random subset of the stocks can be profitable but volatility will likely increase.
11. Do you utilize any element of market timing in your approach?
No. Our investment strategy does not directly exercise market timing. However, we can take a certain percentage of the portfolio to cash in poor market conditions (e.g., fall 2008) if our mathematical stock selection is short of viable picks.
12. Do you use leverage or short any of the stocks?
No. We maintain only long positions and do not apply leverage.
13. Since your portfolio usually holds stocks for less than one year, don't you worry about short-term capital gains taxes?
Investors are wise to keep such tax implications in mind but should not let such concerns dominate the decision-making. This is a moot point for many people who situate their active investment strategy within a tax-advantaged account (e.g., Roth IRA). While for many other investors not using tax-advantaged accounts, the tax burden is offset by the higher returns that our portfolio offers.
14. Do you have year-by-year returns for your investment model that show how you did in down years?
Year-by-year returns are reported in this Annual Returns chart. Our defensive performance during the last two bear markets (2000-2002; 2008) has been strong. NorthStar StockCompass is engineered to select stocks that perform strongly in both bull and bear markets.
15. How has the NorthStar StockCompass portfolio performed against other benchmarks (NYSE, NASDAQ, Russell, etc...) ?
Performance relative to the S&P 500 and Russell 2000 is reported daily on our home page and the Performance page. Performance relative to other benchmarks (Wilshire 5000, Dow, NYSE, NASDAQ, AMEX, and MSCI EFA) is reported weekly in the Weekly Review.
16. How do you determine the asset allocation (sectors, etc..)?
Our portfolio maintains broad sector and market capitalization diversification using a strategy that relies on strong financial fundamentals instead of chasing hot sectors or short-lived developments.
17. Are your market-cap weightings fixed, or do they change?
Our investment models are adaptive with changing market trends and will adjust the portfolio's market-cap distribution to maximize risk-adjusted returns.
18. Does your portfolio have international exposure?
Our portfolio has international exposure by holding foreign companies that trade in the U.S. stock markets as American Depositary Receipts (ADRs). ADRs are the means by which most foreign companies participate in the U.S. markets.
19. How do I assure that I receive the weekly e-mails?
To prevent e-mails from getting blocked by a spam filter, please add us to your "friends" list or enter stockcompass@northstarstrategic.com in your address book.
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