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One Up On Wall Street

Key Learnings From Section 2

  • Understand the nature of the companies you own and the specific reasons for holding the stock.
  • By putting your stocks into categories you’ll have a better idea of what to expect from them.
  • Big companies have small moves, small companies have big moves.
  • Consider the size of a company if you expect it to profit from a specific product.
  • Look for small companies that are already profitable and have proven that their concept can be replicated.
  • Be suspicious of companies with growth rates of 50 to 100 percent a year.
  • Avoid hot stocks in hot industries.
  • Distrust diversifications, which usually turn out to be di-worse-ifications.
  • It’s better to miss the first move in a stock and wait to see if a company’s plans are working out.
  • People get incredibly valuable fundamental information from their jobs that may not reach the professionals for months or even years.
  • Separate all stock tips from the tipper, even if the tipper is very smart,  very rich, and his or her last tip went up.
  • Some stock tips, especially from an expert in the field, may turn out to be quite valuable.
  • Invest in simple companies that appear dull, mundane, out of favour, and haven’t caught the fancy of Wall Street.
  • Moderately fast growers (20 to 25 percent) in nongrowth industries are ideal investments.
  • Look for companies with niches.
  • When purchasing depressed stocks in troubled companies, seek out the ones with the superior financial positions and avoid the ones with loads of bank debt.
  • Companies that have no debt can’t go bankrupt.
  • Managerial ability may be important, but it’s  quite difficult to assess. Base your purchases on the company’s prospects, not on the president’s resume or speaking ability.
  • A lot of money can be made when a troubled company turns around.
  • Carefully consider the price-earnings ratio. If the stock is grossly overpriced, even if everything else goes right, you won’t make any money.
  • Find a storyline to follow as a way of monitoring a company’s progress.
  • Look for companies that consistently buy back their own shares.
  • Study the dividend record of a company over the years and also how its earnings have fared in past recessions.
  • Look for companies with little or no institutional ownership.
  • All else being equal, favour companies in which management has a significant personal investment over companies run by people that benefit only from their salaries.
  • Insider buying is a positive sign, especially when several individuals are buying at once.
  • Devote at least an hour a week to investment research. Adding up your dividends and figuring out your gains and losses doesn’t count.
  • Be patient. Watched stock never boils.
  • Buying stocks based on stated book value alone is dangerous  and illusory. It's the real value that counts.
  • When in doubt, tune in later.
  • Invest at least as much time and effort in choosing a new stock as you would in choosing a new refrigerator.

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Units 19/24