III.  Rank Heroes by long-term investment merit

Long-term investment merit or risk-adjusted return is the most challenging aspect of investment management. AVI’s normal holding target is at least five years. This reduces trading costs and is well-suited to the solid character of American Hero companies. Risk or the probability that the expected returns will be achieved is also important to assess. We use a variety of tools, including: (1) the long-term price history (an indication of investors’ assessment of the company’s record); (2) modern portfolio theory measures, such as beta, which demonstrate higher return in the value and smaller cap areas; and (3) common sense, such as higher P/E stocks are generally more risky than lower P/E stocks and trends tend to persist. Ranking American Heroes in descending order of investment merit is a key part of AVI’s investment management service. Within the American Hero Company universe we normally pick the companies with the best long-term investment merit for each of our model portfolios.

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