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Buffett and Beyond: Uncovering the Secret Ratio for Superior Stock Selection, + Website, 2nd Edition by Joseph Belmonte

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Chapter 24

Enhanced Income

We've constructed some very nice portfolios so far. A growth portfolio can be constructed with the use of our computer program in very little time. You merely find the stocks that have high and consistent Clean Surplus ROEs. Some stocks have rising ROEs, which is even better.

We then went on to develop a great dividend income and growth portfolio: a little more work, but wow, what a great portfolio and easy to maintain.

But what if we can take those two fantastic portfolios and add another 2, 3, or 4 percent per year to either portfolio?

What if we take our two great portfolios and are able to add another 3–4 percent per year to each of them? “Wow” is the word you are looking for.

We can put some of this added income into the purchase of insurance or just reinvest that extra income each year or a little of both. More work, yes, but just think about the reward at the end of the rainbow.

This chapter will give us a basic understanding of the concept of enhanced income. This chapter is not intended to teach you the various methods of adding income, as that would take books and not chapters. It also takes time and experience. We can always head you in the direction of people who do this for a living, but for now, let's just talk about the concept of enhanced income.

I first heard the term “enhanced income” from a dear friend, formerly of Smith Barney. It simply means ways to increase the income of a portfolio through such methods as covered option writing ...

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