Tuesday Night Stock Club

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Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021Tuesday Night Stock ClubBY DOUG GERLACH, PRESIDENT, ICLUBCENTRAL INC. MARCH 20212MARKET MUSINGS31

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/20212021 Market Performance YTDS&PSmallCap600S&P 500EAFES&P 500 PE RatioAs of 2021-03-02Source: www.multpl.com, using estimated TTM EPS2

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021S&P 500 TTM Earnings per ShareAs of 2021-03-02Source: www.multpl.com, using estimated TTM EPSS&P 500 Dividend Yield7Source: www.multpl.com, using estimated TTM Dividends3

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/202115-MINUTE STOCKPORTFOLIO CLINIC81. Diversify by Sector & Industry Spread out into many industries. Where to find: Beware focusing too heavily on retail, Toolkit 6 or myICLUB.comconsumer goods, restaurants,healthcare.Sector/Industry DiversificationGraph and Report Avoid sector concentration. ALSO CONSIDER: International Exposure of Direct new research into findingCompaniescompanies in sectors/industriesnot currently owned.94

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/20212. Diversify by Company Size Large companies: less volatility but lessLarge( 10B),25%Small( 1B),25%Midsized,50%growth. Small companies: more growth, butmore volatility. Midsized companies: good growth atreasonable volatility. Where to find: Toolkit 6 or myICLUB.com Company SizeDiversification Graph and Report ALSO CONSIDER: Projected EPS Growth Rates of Companies10Bring Portfolio (Back) Into Balance Set your diversification target by company size & industry group. Ideal allocation: At least 7 sectors should be represented No single stock/industry to be less than 3% or more than 15%. No 2 companies in same/related industry group. May decide to sell or replace stocks in over-weighted segments (perhaps inconjunction with capital gain/loss review), OR may decide to set goal for next few months to improve diversificationby adding new companies from different sectors/industries (preferred).115

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/20213. Don’t Own Too Many Stocks Old rule: 10-12 stocks offer good diversification. Newer research: 15-20 stocks provides better benefits. In a club: own no more companies than members can followeffectively. 1 per member? No stock less than 3% of total portfolio. Owning too many stocks causes returns to regress to mean(average of market).12Total Portfolio Risk as Function of # of StocksStandard Deviation (%)Source: Dresdner Kleinwort Macro ResearchNumber of Stocks613

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/20214. Don’t Fear Selling Use PERT Principles: review stocks after each quarterly EPSannouncement. Replace (not “sell”) stocks with limited upside potential orproblematic concerns. Over-valued stocks are as big a risk as under-performing stocks. Upgrade your portfolio at every opportunity. Sell/replace on uncertainty. Remember: Patience is a virtue. Stubbornness is a vice!145. Don’t Get Dragged Down by Fees Commissions & costs should be less than 2% per purchase. Today, should be well below 1%. Otherwise, fees eat excessively into returns. Watch for ADR & other fees that may be hidden. Larger investments also force you to concentrate energy intofinding absolute best candidates.157

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/20216. Be Tax-Smart about Gains & Losses Whenever you are selling, consider matching sale of another stock inportfolio. If selling at gain, consider selling stock held at loss. If selling at loss, consider selling stock held with gain. This will net out the loss, so will not have taxable realized gains. BONUS: When selling loser stocks, selling winner at same time minimizesregret that comes with dealing with stocks that declined after purchase. Can consider immediate repurchase of stocks sold at gain, but wait 31 daysbefore repurchasing stock sold with loss.16Harvest Gains & Losses At year-end consider selling to harvest losses/gains. Identify biggest losers & biggest winners in portfolio. Look for large imbalances in portfolio diversification. Look for companies with possible fundamental concerns or uncertainfutures. BONUS: This can eliminate/reduce taxes AND eliminate futurepotential losses from both overvalued stocks & underperformingcompanies.178

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021About Tax Selling Decisions Tax selling decisions are often made with temporary intent. Are often great way to remove emotion from dealing withunfavorable stocks. WASH SALE RULE: When selling at a loss, can notrepurchase same security until 31 days later. Revisit stocks sold at loss in 31 days to determine if repurchasing isgood move. Does not apply to stocks sold with gains.18ADJUSTING VISUAL ANALYSISGRAPH IN TOOLKIT 6199

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021What If Data Doesn’t Fit on Chart? Some companies may not display fully on Visual Analysis chartwhen initially displayed. Toolkit has several features to adjust display: Preferences Stock Study option for “Initially Place Lines” Scaled orOn Values. Set Graph to Values menu option in Visual Analysis window. Click & move series with mouse (Ctrl-click & drag to “pop” to nearestscale).20Example #1: Data Off Top of Chart2110

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021Example #1: Data Off Top of ChartClick “AddScale” onmenu bar(1-2 times).22Example #2: Data Off Bottom of Chart2311

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021Example #2: Data Off Bottom of ChartIn Data, window EPS isnegative for all years—no EPS data can bedisplayed on semi-loggraph.24Example #3: Data All Over the Place2512

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021Example #3: Data All Over the PlaceAdd Scale, Set Graphto Values, then holdCtrl while clicking &dragging series—willthen “pop” to nearestcorrect scale.26Example #4: Data Off Bottom & Top2713

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021Example #4: Data Off Bottom & TopClick & drag to rightlocation, ignoringlowest values on leftside of chart28Final Adjustments Negative values never show on semi-log graph, so in extremecases may delete negative EPS/PTP values (or data for wholeyears) in Data window. This may be suitable for emerging businesses if you are confident thatthey won’t show losses in future. Check if company provides Non-GAAP data which may bemore useful, then hand enter those figures for EPS into TK6.2914

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021STOCK OF THE MONTH30Automatic Data Processing (ADP) Recommended in March 2020 Investor Advisory Service stocknewsletter: www.InvestorAdvisoryService.com Use promo code TUESDAY for discount on online subscription.3115

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021IAS ADP is longest-continuously covered stock in IAS history. First recommended on 6/9/1975 at split-adjusted price of 2.91. Re-recommended on 2/22/1990. Re-recommended on 5/9/1997. Recent price: 173.16. Total gain (through 11/18/2020): 5,945.4%32Automatic Data Processing Founded 1949. NYSE: ADP. Largest global payroll processor, with 860,000 employer clients in140 countries & territories. Operates in 3 segments: Employer Services, 65% of revs. PEO Services, 31% of reves. Interest earned on employer deposit of payrolls: 4% of revs.3316

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021Sources of Current & Future Growth Expanding overseas opportunities. Long history of earnings leverage from automation. Business recovery from pandemic. Rising interest rates.34ADP Historical & Projected Growth3517

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021ADP Quarterly %PTP Graph (TTM Basis)36ADP P/E History3718

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021ADP Reward & Risk38ADP Total Return Analysis3919

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021Where’s Doug? March 16-18, 2021 - The MoneyShow August 10-12, 2021 - The MoneyShow March 27, 2021 - South Florida BetterInvesting August 24-26, 2021 - The MoneyShow World of ETFChapter October 5-7, 2021 - The MoneyShow April 17, 2021 - NE Ohio BetterInvesting Chapter August 21, 2021 - Georgia BetterInvesting Chapter April 20-22, 2021 - The MoneyShow October 8-10, 2021 - American Association of May 8 - West Texas BetterInvesting ChapterIndividual Investors (AAII) National Conference, LasVegas June 15-17, 2021 - The MoneyShow October 21-24, 2021 - BetterInvesting National June 29-July 1, 2021 - The MoneyShowConvention, Dallas July 12, 2021 – Research Triangle AAII Chapter December 14-16, 2021 - The MoneyShow July 13-15, 2021 - The MoneyShowMost upcoming events are presented online. Confirm details with presenting organization.40Questions?EMAIL ME: GERLACH@ICLUB.COM4120

Tuesday Night Stock Clubwith Doug Gerlach, gerlach@iclub.com3/2/2021STAY THECOURSE21

Tuesday Night Stock Club with Doug Gerlach, gerlach@iclub.com 6 3/2/2021 Old rule: 10-12 stocks offer good diversification. Newer research: 15-20 stocks provides better benefits. In a club: own no more companies than members can follow effectively. 1 per member? No stock less than 3% of total portfolio. Owning too many stocks causes returns to regress to mean

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