“Many people who dabble in stocks either have mediocre results or lose money because of their lack of knowledge”.
William O’Neil
A combination of fundamental and technical analysis is used in picking winning stocks.
Fundamental analysis looks at a company’s earnings, earnings growth, profit margins, and return on equity and helps identifies quality companies and stocks.
Technical analysis involves reading a stock’s price and volume chart to time decisions properly, with the objective to buy the very best companies at the right time.
Typically, growth stocks have a high quality, repeat-type product or service that generates superior profit margins and return on equity. In addition, consensus earnings estimates for these stocks for the next year or two are also expected to be up by a significant amount.
Value stocks are identified after evaluating a company’s balance sheet, and profit and loss statement. Hidden values, such as large sums of cash, or property carried on the books at cost and below current market prices can be identified.
The markets greatest winners usually put in their best performance during the first 15 years after their initial public offering with the best advances within 8 years of their IPO’s.
Over the previous 12 business cycles, the best money managers produced an average compounded total return of 25% and in some cases 30%.
These managers were either growth stock managers or managers whose most successful investments were in growth stocks plus a few big turnaround situations. The best undervalued type managers in this same period averaged 15% to 20%.
The best growth stocks are leading companies in their fields,providing superior new products or services in a free marketplace. They are well capitalized and reporting significant increases in sales and earnings growth. Returns on equity are high, and level of debt are low. Managerial ownership should be meaningful, with institutional sponsorship increasing along with profit margins.
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