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.