The Bull Hunters Guide

Hey there. Welcome once again to our series of posts covering some of the most popular and effective methods for selecting stocks. These methods have been documented and compiled over the years, and while they differ dramatically in terms of execution and philosophy, they all share the common element that, depending on who you ask, they work!

While every stock selection is something of a gamble, it’s our hope that by looking at these time-tested strategies, you’ll begin to gleam some idea from them of how winning stocks are usually chosen, and begin to develop your own strategy that will be effective for you.

Beating The Dow

Today, we’re going to look at what is probably one of the simplest methods in all of investing. This method was first presented in a book by Michael Higgins called “Beating the Dow”, and is commonly known as the “Dogs of the Dow” method. Selecting stocks by this method couldn’t be easier. You simply take a look at the top 30 companies with the highest dividend yields, according to the Dow Jones Industrial Average, and then spread your portfolio among the top ten.

That’s really all there is to it. You just check back every so often, perhaps every quarter, and make changes based on what you see, so that your portfolio always accurately reflects the top ten dividend yield stocks at any given time.

Depending On The Dividends

Clearly, this strategy is depending highly on the dividends that you’ll receive from the stocks in question, but it always takes into consideration the future potential of those stocks. The idea is basically that, if a stock is in the Dow top 30, it will typically be a strong stock with enough of a foundation to weather passing storms and eventually return to a position of prominence, whereupon you can sell it for an amazing profit. In the meantime, you just enjoy those dividend yields.

Well, that’s it for now. Told you it was a simple method. Next time, we’re going to wrap this series up by taking a look at the last method on our list: technical analysis. Stay tuned!

See you next week for part 10 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Last time in this blog, we began to discuss the CANSLIM method of choosing stocks. Something of a complex system for choosing, CANSLIM involves the study of 7 different criteria in an attempt to pick stocks that are most likely to generate profits for the investors. It differs from other systems in that it doesn’t depend very much on forecasting an uncertain future, but rather on the objective analysis of the current status of a stock. That’s why it has to cover so many variables, and consequently, why we needed to split it up over two entries!

Last time, we mentioned that CANSLIM has to take into consideration the current and annual earnings of a stock, as well as how the company is adapting and making changes in the marketplace, whether it be in terms of new management, new products, or just new policies on how they will conduct business. That covers the CAN part.

Supply, Demand and Leader

The S in CANSLIM stands for “Supply and Demand”. This is a very basic rule of economics that applies to all economic markets and should be very well understood by all investors, even beginning ones. How supply and demand relates to CANSLIM is that CANSLIM strategies hold that, overall, it’s easier for smaller companies to show greater profits. This is because larger companies require a greater demand in order to push the kind of supply that should show huge profits.

The L in CANSLIM stands for “Leader or Laggard”. This refers to the fact that a CANSLIM strategist asserts that one should look at the difference between those companies that lead the market and those that lag behind. Investors are always looking for the next big thing, which is just another way of saying that they’re looking for those companies that lead the market. In order to determine this, one should look for stocks that perform better than 75% of their competitors in the same industry.

Institutional Sponsorship and Market direction

The I in CANSLIM stands for “Institutional Sponsorship”. This means that a CANSLIM strategist looks for companies that demonstrate some kind of sponsorship from important and well-backed institutions. This is generally a sign that an industry has faith in a company, and that it’s going to be around, generating profits for the long haul.

The M stands for “Market Direction”. This means that a CANSLIM strategist must look not only at the stock in question, but at the entirety of the market in question. Whether or not the market as a whole is moving up or down has a big effect on the profitability of a stock. Even if all the other six factors seem sound, the company will probably not succeed and generate profits in a failing market.

Phew. That’s it for CANSLIM. Next time, we’ll continue our look at the most popular stock picking strategies out there. We’re nearly at the end, folks! Until then, happy trading!

See you next week for part 9 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Last time in this blog, we discussed value investing, which is essentially the strategy of finding a company that looks to have good prospects but is undervalued by other onlookers who are playing the market. One then buys stock in that company while it’s at a low price, and then enjoys the returns when their prediction pays off and the company’s value increases despite prevalent opinion to the contrary.

Growth Investing

Today, however, we’ll be looking at a competing strategy that has enjoyed just as much success and notoriety over the years: growth investing. Whereas value investors look at the present state of a company in order to forecast the wisdom in investing in them, a growth investor more or less ignore that in favour of attempting to assess a company’s future growth potential, regardless of its current price. In other words, while a value investor would ignore a high priced stock, regardless of the company behind it, a growth investor would not. He or she would look at the factors that would let them realize that that high priced stock is about to become a super-high priced stock, meaning they’ll be making just as much of a profit as the value investor would have in his or her value priced stocks.

Sudden explosive growth

Since a growth investor relies heavily on companies that experience sudden explosive growth, it makes sense that they would look to the two arenas that see that kind of activity most often: new businesses, and businesses in industries related to new technologies. There’s no hard and fast formula for determining whether or not a company that matches this criteria will actually experience the explosive growth that growth investors are hoping for, but by looking at certain matters of fundamental analysis such as whether or not the company has grown in the past, and matters of qualitative analysis such as how their current position in the market is looking, one can put together a reasonable assessment of a company’s potential future growth.

Risk levels for the investor

There is some sense in which growth investing is said to be riskier than value investing. While this may be so, it’s certainly a strategy that has met with a lot of success over the years, and continues to do so for those who know how to wisely employ it.

Join us next time as we look at more time-tested strategies for choosing the right stocks, at the right time.

See you next week for part 5 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Hello again, and welcome back. This time, we’re still discussing the different theories on how best to choose a stock that is poised to give big gains in the future. It sure sounds simple enough, but there are a lot of conflicting ideas out there, and we’re planning to examine each one in turn to see just how well they hold up.

The goal of fundamental analysis

Last time, we talked a bit about fundamental analysis, and how its main goal was to look at the numbers of a company in order to generate a mathematically supported future projection for the company’s cash flows. Since this is essentially the same kind of appraisal one would do when buying a company, it makes sense to apply it to the stock market, and indeed most of the strategies we’ll discuss here are simply an extension of evolution of the idea of fundamental analysis in some way or another.

Qualitative analysis

The first of these is qualitative analysis. What qualitative analysis has to say might seen very obvious, but it’s something that some of us don’t care to admit because it tends to throw a very large monkey wrench into our carefully controlled fundamental analysis calculations. The main idea behind qualitative analysis is that attention must be paid to the subjective, “quality”-based parts of a company, as well as the objective aspects of the situation (the numbers).

Appraising a company

To appraise a company in the qualitative sense, investors tend to need to do a lot of research and ask a lot of questions. Of course, in many cases, a lot of the research will already be done for them, but they still have to take the initiative to seek it out before they put their money down. Questions like the following tend to be very helpful in accessing the subjective quality of a company.

Where did the company come from? No company springs up overnight. Discover the company’s origins, and by extension, whether or not the company really seems to have a solid foundation under it.

Company policies

What ideas drive company policies? Companies that are in their respective industries to turn a fast buck and then cash out may have good numbers on paper but are clearly not wise ideas for long term investors. It pays, then, to know a thing or two about the philosophy behind a company’s leaders.

A close eye on “who’s in charge”

Who are the people in charge of this company? Oftentimes, a company will change hands, and this can happen without small scale investors even being aware of it if they aren’t paying attention. For this reason, it’s important to keep a close eye on the individuals in charge of the companies you’re invested in, in order to make sure that the individuals running them seem qualified for the job.

Of course, it’s also important to analyze the industry as a whole. No company exists in a vacuum, and the trends that affect the industry will affect the companies within that industry as well.

Real value of a company

As we can see, this whole concept of using “strategies” to pick stocks is going to be a lot more complicated than perhaps we foresaw. Of course, there are some sound tips coming up, and plenty of valuable information, but for now, meditate on this all important concept: the real value of a company has to be measured at least in part by real human inquiry, not just calculations and optimistic graphs.

See you next week for part 3 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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This is probably another one of those common sense tips that tends to be overlooked and swept under the rug in favor of the latest “hot tip” or whatever happens to have come down the pipe. Nevertheless, these tips have been around for a reason: they’re important, and their wisdom bears repeating. This time around, we’re going to talk about the old adage of sticking with what you know.

Get the best results from what you know

You’ve probably heard this advice given most often in conjunction with the exercise of writing, under the pretense that by writing about the topics that one is most intimately familiar with, one can produce the best results. The same applies to investing. If you put money into industries that you don’t know the first thing about, you’re going to get into trouble and fast. Suppose that you open up your morning news paper to the technology section and read about Company X having developed an all new standard for etching circuits onto the surface of a microchip, one that can double the number of circuits of past chips. If you know nothing whatsoever about computer chips, then you wouldn’t know exactly what this meant for Company X. You wouldn’t be able to (accurately) speculate as to what it meant for them in terms of near future stock market activity and your hands would be tied. Everyone knows that following an industry’s developments is one of the best ways to know what’s going to happen in its corresponding market presence, so it pays to invest in those industries that you understand well enough to follow.

Satisfaction from investments

Furthermore, you’ll have the advantage of feeling more passionately about your investments, and you’ll derive a greater emotional satisfaction out of working with them. After all, part of the appeal of the stock market is that it’s a lot more fun than just letting your money sit in a bank somewhere! If you have an investment in a company that you used to work for, for instance, or a company that produces a product you use on a daily basis and feel a personal fondness for, you’ll have more invested than just your money. This isn’t just sentimentalism, either; the more you personally care for a company and its products, the more carefully you’ll be inclined to follow the trends that affect it, and ultimately affect your investment.

See you next week for part 9 of Basic Investment Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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