The use of the NAIC/WT-methodology has resulted in above average annual yields, but even more important: the confidence that my investments are in the best place. This confidence is based on the produced insight in the fundamental value of a stock that is a result of the methodology. These and other characteristics follow below:

• No ready to use buy, hold and sell recommendations, but insight in the fundamentals of a company. As said the NAIC/WT-methodology increases the insight in the stock's fundamental aspects. However, don't expect ready to use recommendations. The methodology's philosophy considers the investor's personal situation and preference as a must. What you can expect is whether a stock is undervalued or not. Based on this indication criteria you can - considering your own portfolio and your investment objectives - come to a decision.
• Apply the methodology by using a model. A methodology can be compared to a recipe. Where a recipe gives you a step by step instruction to cook a delicious meal, the NAIC/WT-methodologye leads you step by step to a intelligent investment decision. And where you need the right ingredients for fixing your meal, you need the correct data and ratios for your investment decision. Looking up and interpreting these data and ratios is most of the time a time-consuming job. Not with the WT-Invest-model! This model presents and calculates the necessary data of a large number of stocks. Of course are annual company results incorporated in the model as soon as they come out, but moreover monthly is the model updated with the stock's earning estimates.
• Selection based on fundamental analysis, timing a buy/sell based on technical analysis The NAIC-methodologye is limited in a way that it can only indicate whether a stock is over- or undervaluated. The WT-Invest variant goes a step ahead by stipulating the right moment to buy or sell by means of technical analysis. More specific, by means of the RSI. Many years of experience have learned me not to sell an overvalued share right away when tides are up, but to gradually decrease my position. At the other side, at certain moments it looks like stocks can't fall away any further, whereas the period 2002/beginning 2003 has shown differently. Even if all fundamental indicators give positive signals, it still is wise to slowly build up your position.

• Manage your own portfolio based on your risk-profile A large advantage of the NAIC/WT-methodology is that you control the way your stock portfolio look like. Not only does this save you costs for a mixed fund, you also exactly know how risky your portfolio is. The methodology supports you in composing a balanced portfolio. More concrete, it helps you to determine the valuation of a stock and to recognize whether it concerns a growth stock or a value stock. In general growth stocks are riskier, since the relatively high appreciation of the stock is based on high growth expectations.
• User-friendly and easy to use Applying the NAIC/WT-methodology and associated model demands a small amount of time. The provided insight does allow you to purchase shares and do nothing for a couple of months. It is however recommended to spend a couple of hours on your portfolio at least once a month. Remember that the valuation of a stock is mainly based on the earning estimates of the concerning company. And as these estimates are updated monthly the outlook for a stock can also change each month.
• Useful for medium and long term investments The methodology aims at buy cq. sale decisions on a long term. The methodology has not been arranged to obtain short term profits based on sentiment driven short term fluctuations. For this type of investing (trading), I strongly advise you to use other techniques than the NAIC/WT-methodology. In that case technical analysis is far more suitable.
• Based on data: historic key figures and earning estimates To determine the stock valuation the methodology doesn't take chances (or rumours) of a take over of a company into account. But it will be clear that undervalued stocks are more attractive for potential buyers than overvalued ones. A considerable number of shares in our own portfolio (e.g. stocks as Airspray, Athlon and McGregor) are bought up by private equity companies with a nice premium as result! A second "flaw" is that starting companies are not incorporated in the model. This because the methodology values stocks on basis of historical data and with new companies these are limited by nature.
• Methodology for solid, non-cyclical stocks The NAIC/WT-methodology is specificaly suitable for solid companies. So the quality of the NAIC/WT-advise depends on the stability and continuity of the EPS (Earnings per share) and SPS (Sales per share) growth. Cyclical companies, restructuring companies or companies that show for any other reason strongly changing results, are in general not suited for analysis by this sites' methodology. Take this into account when you select stocks in our model.

The NAIC/WT-methodology is made up by a number of steps, which in the end lead to a justified investment decision. These steps have been commented in this article. To apply these steps in a simple manner, you can use the model that is offered on this site.

• Step 0: Selection interesting stocks We start with identifying possible interesting stocks. For this the model offers a selection tool, through which stocks can be compared on the basis of core ratios. The tool makes it possible to gain fast insight: which stocks for example have a high stock price potential in the short or long term, what is the average expected growth and what is the historical price-earnings ratio?

The selection step is indicated as step 0, because this step isn't directly part of the actual analysis. So what is this "actual analysis"? It's goal is forming an idea of the range in which the selected stock will most likely move the coming years. At the base of this analysis lies some crucial ratios/data: earnings per share (EPS), sales per share (SPS), owner's equity per share, highest and lowest stock price for at least the last five bookyears. With these data ratios are calculated that make a forecast of the coming years possible, by following the next steps:

• Step 1: Estimating average historical growth To estimate the average annual growth for both EPS and revenues (or SPS) two methods are used. These methods ensure that the most reliable growth percentage is calculated. The reliability however depends on the quantity of historical data that is available: the more EPS and SPS data available, the more reliable will be the outcoming average annual growth percentage.
• Step 2: Comparison between EPS and SPS annual growth Once you have estimated the historical EPS-growth of the concerning stock, you have to determine how realistic this groth is for the coming years. An indication of how realistic this historical growth is for the future can be obtained by comparing the historical EPS and the historical SPS growth. If they are approximately equal, this is a gignal of a healthy and stable situation.
  An EPS growth that is much higher than the SPS growth is reason not to rely on this historical EPS-growth. In this case it is best - when using the NAIC/WT-model to manually fill in an adjusted percentage that is more in compliance with the SPS-growth (see also the User guide - Stock analysis). Reason for this is that if profits rise fast but revenues aren't, profit margins will rise. In other words, the margin between the incomes of a product or service and the production costs increases. This can only be justified if the company:
  1. selling prices of the company's product or service can steadily raise because of the company's leading market position or;
  2. production costs can steadily be reduced by cutting on the costs.

  The first case will be difficult for a company to hold on to on a long term, because high profits attracts competition. The second case will eventually lead to a drop of the EPS-growth, since efficiency improvements are limited.

• Step 3: EPS forecast for the coming years The average annual EPS-growth is used to forcast the company's EPS in the near future (forecast period). For this it is important to recognise two parts in the forecast period:
  1. DPeriod of first couple of years, for which earnings estimates by professional analysts are available. These earnings estimates are taken into account by determine the average annual EPS-growth.
  2. The following years. EPS data for these years are calculated by multiplying a previous year's EPS with the average annual EPS-growth.
• Step 4: Estimating highest and lowest average Price/Earnings ratios (P/E ratios The historical series of highest and lowest annual stock prices are used to calculate average highest en lowest P/E ratios. This is simply done by deviding the highest or lowest annual stock price by the annual Earnings per share (EPS). This results in two series of P/E ratios (highest and lowest). Of each serie the average is calculated.

• Step 5: Extrapolation P/E ratios Basic assumption of the NAIC/WT-methodology is that the annual highest and lowest stock price grows just as fast as the EPS. This means that the average P/E ratios from step 4 are used to calculate future highest en lowest prices in the forecast period.
• Step 6: Forecast highest and lowest stock prices We obtain a forecast of the highest and lowest stock prices in the coming years by multiplying the estimated EPS (step 3) with the P/E ratios (step 5). This results in a Price range for the forecast period. This range is upper bounded by the highest estimated stock prices and lower bounded by the lowest estimated stock prices.
• Step 7: Valuate the stock Once we have an idea of the highest and lowest stock prices we can valuate the stock. To do this we look at the current stock price (stock quote) and relate this price to the price ranges upper and lower bound. We do this using the following formula: (current stock price - lowest estimated stock price)/(highest estimated stock price - lowest estimated stock price). This results in a valuation ratio for each year in the forecast period. A valuation ratio between 0 and 0.5 indicates a current stock price in the lower half of the price range (a current price below the range means a negative ratio). A valuation ratio between 0.5 and 1 indicates a current stock price in the upper half of the price range (a current price above the range means a ratio above 1).
  It will be clear that a price at the range's bottom (in other words a low or negative valuation ratio) means that the stock is undervaluated and therefore of possible interest. This is because of the big stock price's growth potential. The other way around a valuation ratio towards 1 or even bigger indicates that an overvalued share.
  It will also be clear that the price range's trend is only upgoing if the annual EPS is actually growing. This is the reason that for a growing company the valuation ratios will have a lower value further on in the forecast period. The speed of this decrease depends on the annual EPS growth. Now generally a rapidly growing company is relatively expensive, in other words has a high Price/Earnings ratio (it's valuation ratio for the firstcoming bookyear will be high compared to slow growing companies). But because of it's high growth percentage the valuation ratio for year 5 in the forecast period will be relatively low.
• Step 8: Assess other relevant information Based on the previous steps you will have a good idea of the stock price's growth potential, of the stability of the company's turnover and profit development and in general you have gotten a reasonable good insight in the company. Next step is that you must ask yourself a number of more or less obvious questions in order to further increase insight. Questions which answers cannot be concluded from available dates, such as:
  1. Are there any foreseeable developments that can disturb your vision on the stock's forecast? Think for example of attentive claims in the tobacco industry or changing business models in the music and media industries due to the rise of Internet.
  2. What are remaining risks? Does the company for example depend on only some large consumers, is the region in which the company operates unstable, etc.?
  3. Is the company growing in a stagnating or decreasing market, or is the company's growth a result of a strongly growing market (and is the company's market share perhaps decreasing)?
  4. How are other stocks performing? Does the share fit well in our portfolio at this moment and in the coming years?
• Step 9: Determine right time to buy/sell You know now the selected stock's valuation, based on the company's fundamentals. But to choose the right moment to buy or sell you can best use technical indicators. A good instrument is the Relative Strength Indicator (RSI). Look in our glossary for a detailed description. If you don't want to carry out this step, be sure that you always limit your order. After all said and done you can place your order and follow the stocks valuation with a peaceful mind, using the NAIC/WT-methodology and associated model.