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Wednesday, February 15, 2012

Buy Alerts Spreadsheet -- Updated

Good stock selection is Job #1 for a successful covered calls investing process -- and the Covered Calls Advisor's 'Buy Alerts' spreadsheet is a critically important tool in that process. This spreadsheet provides a disciplined quantitative method for determining if a particular stock exceeds a desired minimum threshold before it qualifies as a potential investment.

This 'Buy Alerts' spreadsheet has been continually revised and updated over the past several years to reflect this advisor's best understanding of the factors that are important for identifying stocks that will most likely outperform. The spreadsheet is a testament to the importance of discipline and adaptability in the stock selection process -- discipline and adaptability being two of the five key characteristics in the Covered Calls Advisor's "Investing Pyramid of Success"(See "link ").

An example of the current spreadsheet is shown below using the Covered Calls Advisor's current largest holding -- Apple Inc. Apple has had a dramatic price rise on the heels of its outstanding results reported in the most recent quarterly earnings report; so this spreadsheet is used to assess whether Apple still meets the 'Buy Alerts' minimum threshold of 17.0 total points, or whether it has run up too far, too fast. At 21.48 total points, Apple remains as a solid investment opportunity and will be maintained as a core holding in the Covered Calls Advisor Portfolio.

Note: Left-click on this image to expand view.

It is this advisor's strong conviction that no one or two factors are sufficient to screen for stock investments. Factors that work well during one time period are replaced by other factors that work in other timeframes. Consequently, a multi-factor approach that includes a variety of indicators is preferable. As shown in the spreadsheet above, the nine factors come from a variety of financial categories (analysts' ratings, liquidity, value, growth, etc.) In this balanced approach, each rating factors is weighted in accordance with this advisor's perception as to its relative importance in the overall analysis. Taken together, the weighted-average total provides a comprehensive view of a company's financial position and performance trend.

To date, the Buy Alerts spreadsheet has been a useful stock screening method. It is a detailed and somewhat time-consuming process (it takes about 25 minutes to complete a Buy Alerts spreadsheet for each company evaluated). But stock selection is critically important to covered calls investing decisions, just as it is to buy-and-hold investing (or for any investing decisions for that matter). You are certainly welcome to (and encouraged to) incorporate any of these factors into your own stock selection process.

As always, any comments or questions regarding this article are welcomed.

Regards and Godspeed,

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