In addition to being the founder of Investor's Business Daily (IBD), William O'Neil has published several books over the years to help investors navigate the market's ups and downs. In 2004, soon after the dot-com debacle in which millions of investors lost money, O'Neil felt compelled to publish a book to provide fresh insight on trading and risk management. It was entitled The Successful Investor. We highly recommend it.
We've read this book several times. There are many great insights in it. However, one key datapoint that O'Neil shared with his readers came from page 18 (in the paperback edition). In one passage, in which he was trying to convey the risks in holding on to growth stocks for too long, he noted a key insight. Here it is:
"Most people who invest in the stock market think they're going to get rich without doing much homework or by listening to other people. They have no idea of the risks involved, let alone what they must do to lessen these risks. But they plow ahead anyway.
Sure, it would be nice if all we had to do is buy a "good" stock, sit back, and watch it magically go up and up and up. And I'll admit there were times in the crazy bubble market of the 1990s when that seemed to be the case. But, as so many people learned the hard way, it doesn't work like that at all.
What you must realize is that there are no "good" or "safe" stocks. In a way, all stocks are bad-- that is, unless they go up. The only way your selections should be thought of as good stocks is after they prove themselves to be good by going up in price after you buy them. They must produce results.
Yes, there are stocks that go up a lot. They're the ones you should seek out. But even the great stocks don't stay great forever. Our studies of all the best stocks of the last 50 years show that the period of greatest market performance lasts on average only about a year and a half to two years. Some last up to three years. Only a tiny number last for 5 or 10 years."
It is on this last point that we will focus our time and energy. We here at Growth Stock Leaders seek to use screening criteria and stock analysis to find these companies and invest in these stocks before they hit their 1.5 to 3 year period of maximum return.
High growth stocks represent the highest quality of stock. They are ownership shares in the fastest growing companies in the world. Why would anyone ignore the best stocks? Why wouldn't an investor pay a premium for the best growth? We will explore these questions on this blog.
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