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20 Wisdom Points from the Book ‘Superperformance Stocks’

  
  Education
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If you read Jesse Livermore’s “How to Trade in Stocks” from 1940, Nicolas Darvas’s ‘How I made 2M in the stock market” from 1960, Richard Love’s “Superperformance Stocks” from 1977, William O’Neil’s early version of “How to make money in stocks” from the 1990s or Howard Lindzon’s “The Wallstrip Edge” from 2008, you will realize that after so many years, the main thing that has changed in the market is the names of the winning stocks. Everything else important – the catalysts, the cyclicality in sentiment, has remained the same.

Here are some incredible insights from Richard Love’s book ‘Superperformance Stocks’. In his eyes, a superperformance stock is one that has at least tripled within a two-year period.

1. The first consideration in buying stock is safety.

Safety is derived more from the good timing of the purchase and less from the financial strength of the company. The stocks of the nation’s largest and strongest corporations have dropped drastically during general stock market declines.

The best time to buy most stocks is when the market looks like a disaster. It is then that the risk is lowest and the potential rewards are highest.

2. All stocks are price-cyclical

For many years certain stocks have been considered to be cyclical; that is, the business of those companies rose and fell with the business cycle. It was also assumed that some industries and certain companies were noncyclical— little affected by the changes in business conditions. The attitude developed among investors that cyclical industries were to be avoided and that others, such as established growth companies, were to be favored. To a  certain extent this artificial division of companies into cyclical and noncyclical has been deceptive because although the earnings of some companies might be little affected by the business cycle the price of the stock is often as cyclical as that of companies strongly affected by the business cycle. Virtually all stocks are price-cyclical. Stocks that are not earnings-cyclical often have higher price/earnings ratios, and thus are susceptible to reactions when the primary trend of the market begins to decline. This can occur even during a period of increasing earnings.

3.  A Superb Company Does Not Necessarily Have a Superb Stock. There are no sure things in the market

There has been a considerable amount of investment advice over the years that has advocated buying quality. ”Stick to the blue chips,” it said, “and you won’t be hurt.” But the record reveals that an investor can be hurt severely if he buys a blue chip at the wrong time. And even if he does not lose financially, he usually has gained very little, particularly considering the risks he has taken. (more…)

20 Thoughts from -Richard Love’s “Superperformance Stocks”

  
  Education
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If you read Jesse Livermore’s “How to Trade in Stocks” from 1940, Nicolas Darvas’s ‘How I made 2M in the stock market” from 1960, Richard Love’s “Superperformance Stocks” from 1977, William O’Neil’s early version of “How to make money in stocks” from the 1990s or Howard Lindzon’s “The Wallstrip Edge” from 2008, you will realize that after so many years, the main thing that has changed in the market is the names of the winning stocks. Everything else important – the catalysts, the cyclicality in sentiment, has remained the same.

Here are some incredible insights from Richard Love’s book ‘Superperformance Stocks’. In his eyes, a superperformance stock is one that has at least tripled within a two-year period.

1. The first consideration in buying stock is safety.

Safety is derived more from the good timing of the purchase and less from the financial strength of the company. The stocks of the nation’s largest and strongest corporations have dropped drastically during general stock market declines.

The best time to buy most stocks is when the market looks like a disaster. It is then that the risk is lowest and the potential rewards are highest.

2. All stocks are price-cyclical

For many years certain stocks have been considered to be cyclical; that is, the business of those companies rose and fell with the business cycle. It was also assumed that some industries and certain companies were noncyclical— little affected by the changes in business conditions. The attitude developed among investors that cyclical industries were to be avoided and that others, such as established growth companies, were to be favored. To a  certain extent this artificial division of companies into cyclical and noncyclical has been deceptive because although the earnings of some companies might be little affected by the business cycle the price of the stock is often as cyclical as that of companies strongly affected by the business cycle. Virtually all stocks are price-cyclical. Stocks that are not earnings-cyclical often have higher price/earnings ratios, and thus are susceptible to reactions when the primary trend of the market begins to decline. This can occur even during a period of increasing earnings. (more…)

New Glossary of Finance Terms

  
Education, Humour
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glossaryBonus:  A form of extortion whereby employees of a company extract either shareholder or taxpayer money for their own pleasure regardless of the success or failure of said company.

Derivatives:  Trading vehicles created by over-educated  finance professionals for whom speculating in stocks and bonds was not quite risky or volatile enough.

Bulge Bracket Firm:  A Wall Street investment bank that is literally “bulging” with off-balance sheet leverage and bloated pay packages for the architects of said leverage.  They used to be referred to as “Too Big to Fail”, circa 2007-2008; they are now extinct.

Credit Ratings:  These are fictitious opinions of health and financial strength that are sold to the highest bidder.  The business of assigning credit ratings to bonds is similar to the business of receiving payola at a radio station for playing a particular record more often than others.  

Department of the Treasury:  This is a government agency in charge of rescuing companies and executives who make bad decisions or investments.  Oh yeah, another minor function they serve is printing the nations currency.

Federal Reserve:  An institution that ensures the inflation and subsequent bursting of asset bubbles roughly every 7 years.

Hedge Fund:  A betting pool, similar to a group of employees or friends who all contribute their money to a pot and buy lottery tickets.  Only in this case, a few of the participants charge everyone else involved a fee for picking which lotto numbers they will play. (more…)

The Wyckoff Spark

  
  Education
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On a recent plane trip, yours truly polished off “How I Trade and Invest in Stocks and Bonds” by Richard D. Wyckoff.

Originally published in 1924, this short little book is a classic — well worth revisiting — and will later get a full review in its own right. (There is just something wonderful about old trading books.)

For now, though, the below passage is excellent — a classic demonstration of utilizing all the principles of the game.

Next in importance to knowing what to buy is the question as to when it should be done. (more…)

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