A USA Financial Formulas® strategy is a managed portfolio system that offers a variety of investment options such as common stocks, bond funds, exchange traded funds and preferred stocks. They are not what makes this strategy so unique, but rather how a strict formulaic criterion is applied to each investment to determine which ones qualify for a client portfolio.
In addition, a formulaic investment strategy is designed to eliminate human emotion from the “when do I buy and when do I sell” question. It provides a more systematic approach to investing. This approach is based upon numerous studies that reveal the negative impact greed and fear behavior and emotion can have on a portfolio. Actions based on greed, fear, indecision, procrastination and lack of understanding can all cause a severe decline to an investors’ portfolio.
Imagine an electronic funnel that examines each and every stock on the New York Stock Exchange, the American Stock Exchange, and the NASDAQ. And, of course being electronic it does this at computer speed. The system examines many different criteria of each company, such as the price/earnings ratio, market capitalization, return on equity and then filters out any stocks that do not meet the formulaic criteria. The system only allows the stocks that pass the criteria to move into a portfolio. In a procedure referred to as “rebalancing” this process is repeated every thirty days.
Next, the strategy utilizes fundamental analysis to analyze market trends, what I refer to as the “gate keeper.” Imagine a gate with seven switches that evaluates the economy as well as the overall stock market. Each switch monitors specific criteria, like market volatility, risk of economic recession, moving stock index averages etc. As an example, if at least three switches turn negative in a given month the gate will close and block the flow of stocks from the funnel. Existing stocks will then automatically be moved into alternative investments. As the market recovers and the switches turn positive, the gate will reopen and the formulaic stock selection process will resume.
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USA Financial Formulas® investment strategies & scoring mechanisms do not guarantee that the markets will increase when scores are strong or decrease when the scores are weak. But we believe the long term correlation may be valuable for investing.
USA Financial Formulas® is an SEC registered investment adviser. SEC File No. 801-68276. SEC Registration does not imply a certain level of skill or training. USA Financial Formulas® is located at 6020 East Fulton Street, Ada, MI 49301.