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At the Puget Sound Model Club meeting tonight we thought it would be nice to have a discussion of the purpose of watch lists.  So, hopefully someone will write one!!

Definition

My definition of a "Watch List" is a group of stocks with acceptable quality (growth and efficiency) that are not trading at a current price that meets my buying criteria of:

1. Upside/Downside Ratio of 3:1 or more.

2. Relative Value (RV) or Projected RV 80% to 110%.

3. Total Return or Projected Annual Return adding to the portfolio's desired rate of return (generally around 15%)

4. Fit into my diversification plan.

Uses of a Watch List

I see two uses for a watch list:

1. Defensive portfolio management.

When one of my currently held stocks develops long-term quality problems and must be sold, the watch list is a source of replacement ideas.

2. Offensive portfolio management.

When one of my currently held, good quality stocks becomes so grossly overpriced that most of the next 5 years price appreciation attributable to its fundamental growth is already present in its current price and I decide to look for a replacement stock of equal value whose current price has significantly more appreciation potential, the watch list is a source of replacement ideas.