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.
Disclosure: I do not recommend any decision to the reader or any user, please consult your own research. Thank you for your understanding.