In the recent weeks I have thought a lot about a new project. I want to create a new Wikifolio, in which everybody can invest. Unfortunately Wikifolio is currently only available in the german speaking area.
What is a Wikifolio?
wikifolios are virtual portfolios, where private traders, professional asset managers and renowned financial media implement their trading ideas. Each wikifolio can serve as a notional reference portfolio to which a corresponding wikifolio index refers. The Lang & Schwarz Aktiengesellschaft issues open-ended index certificates on those that are traded on the Stuttgart stock exchange.
From the outset, all transactions in the wikifolio are publicly available and their performance can be followed closely and seamlessly. If a wikifolio finds enough supporters, an exchange-traded wikifolio certificate can be created based on it in which everyone can invest via their bank or their online broker.
The investments strategy of the Wikifolio deals with investing in undervalued companies. The fact that these companies are undervalued is based on the following calculation:
The 5-year average of the following ratios is used:
- Price / Earning
- Price / Book
- Price / sales
- Price / cash flow
These are then multiplied by the current EPS, book value, sales and cash flow. The respective results are now calculated with the following weightings:
- Price / Earning: 30%
- Price / Book: 30%
- Price / Sales: 15%
- Price / cash flow: 25%
The result is then the 5 year average rate. If the current price is 10% below this average rate and at the same time 20% below the 5 year peak, an investment will be made.
Half of the shares will be sold as soon as the stock price is 30% above the purchase price and the other half as soon as it is 60% above the purchase price. In general, after a period of two years, a new decision is made whether the shares will be retained or new shares will be bought according to the valuation described above.
As soon as the price moves 25% below the purchase price, a possible sale will be analyzed. A decisive change in the fundamental data serves as a criterion for the decision-making. Market overreactions will be used for potential repurchases as long as they are in line with valuation above.
Companies from the US and Europe are used as potential investments. Furthermore, it is only invested in companies which have existed for at least 30 years and whose debt to equity ratio is less than 1.5.
In order to compensate the currency risk I also diversify the portfolio by the currencies this will be mainly EUR, GBP and USD.
In addition to the quarterly reports of the companies, morningstar.com is used as a data source.
So, as you can see the valuation of the stocks is similar to my stock valuation articles. But please be aware that the strategy of the wikifolio is different from my dividend investing strategy. In this category, there already exist a lot of different wikifolios. Also, very important before I invest in any stock you will prior to that a stock valuation article here in my blog.
To make my wikifolio free to invest real money I need at least 10 markings within the next 3 weeks, a marking does not mean that you really have to invest in a wikifolio after it has a status for real investments.
I am already curious about how much return I can make with this strategy and how many stocks I can find with this stock valuation approach.
After all I will post a monthly update of my wikfilio here in my blog.
Here the link to my Wikifolio:
Already looking forward to your feedback and support in my project.