Saturday, January 8, 2011
The book of the week was The Little Book That Makes You Rich- Growth Investing by Louis Navellier. I haven't posted much of anything on individual stock picking, mostly I have steered toward index investing. I have done this widely because, while there is money to be had in individual stock picking, it doesn't really interest me to spend that much time on that type of investing. I would rather have real estate be my "time consuming" investment within my portfolio. I put real estate in quotes because even though real estate is the most time consuming investment in my portfolio, it involves much less continuous work than stock picking. But let's get started...
First off, Navellier is much much smarter than I could ever hope to be, and a lot of what he is capable of doing within the realm of growth stock picking, I probably could never do. Mostly because I don't have the mind to be a number cruncher and to be really good at growth investing there is a good deal of number crunching to be had. Evaluating alphas and betas and growth rates and more. Navellier does a good job of breaking his strategy of investing down in this book... he makes a very difficult task easier to undertake with an analysis of eight key factors that drive performance... Here they are, with explanations straight from the book:
1. Positive earnings revisions: when Wall Street analysts indicate that business is even better than anticipated
2. Positive earnings surprises: announced corporate earnings that re higher than analysts expected
3. Increasing sales growth: continuous rapid sales growth of a company's products
4. Expanding operating margins: corporate profit margins that are expanding
5. Strong cash flow: a company's ability to generate free cash flow after expenses
6. Earnings growth: sustained earnings growth quarter to quarter
7. Positive earnings momentum: earnings that are accelerated year over year
8. High return on equity: high overall corporate profitability
Navellier walks the reader through each one of these factors and how to go about analyzing the data. If you enjoy number crunching and you enjoy looking up charts and graphs about different companies then you may really have a unknown passion for stock investing. And growth investing is not the only way to go either. Growth involves much more focus then other types of stock investing, but it also has potential for the largest gains too. The other types of stock investing are Value Investing- investing in stocks that are seen as undervalued and have the most long term potential and Balanced Investing- Just trying to maintain a balanced portfolio in terms of risk and return. If you want to give stock investing a shot, good for you. It does take a considerable amount of money to really start stocking picking on your own just an FYI. As always, if you have any questions on the book don't hesitate to ask. I would be more than happy to help anyone that wants it.