The Secret of Picking Stocks that Average 85% Return in 6 Months to a Year
Lance Spicer, Editor - Trident Confidential, 18 May 2011, 11:32 AM
Every Wednesday morning, I get up when it’s dark, sometimes as early as 4am (as I did this morning) to finish off the week’s newsletter and this morning I had a thought come to me as the result of a subscriber’s comment. The comment was, “How do you get it right so often? I’m crap at picking shares!” I thought - “that’s interesting”.
Over what time period does he think he’s “crap”? If it’s over a day, then I’m pretty bad too, most people are, even over a week, I may not be smelling of roses. However, over 6 months or a year my stock picks look pretty good. My average over this period of time has returned 85% per stock. The reason? Fundamentals! Pure numbers and common sense.
The stocks I pick for TC and the Trident Global Growth Fund may look to be complete rubbish over the very short term, but over a period of six months or a year, the result will be very different in most cases. This is all because the fundamentals, and most importantly the earnings, will shine through. Those earnings and the balance sheet strength will make you look good every time. All it takes is a little knowledge of accounting, a bit of common sense and a touch of patience.
However, April and now, May have been very volatile and we are probably in the midst of a mini correction as many stocks have been sold off pretty hard as the world deals with government debt problems, the possibility of slowing growth in China and correcting commodity prices. What is important however, is not to be put off by the short term “lunacy” of market emotion and panic and stick with what is real. What is real all comes back to fundamentals. Some businesses are doing very well, and some aren’t. You buy the ones that are doing well, regardless of what the market thinks – the market will come around in time. You can’t argue with good earnings.
As for the macro-economic situation with debt and China etc, it will all settle down, just like the panic over Libya and Japan, remember them? China’s growth will slow, we know that, and the debt problems in the US and Europe are very solvable and not nearly as scary to the world economy as the media would have you believe. Investing in the stock market is not a month-to-month proposition; no more than investing in real estate is a month-to-month proposition. It’s a year-to-year proposition. Just imagine if someone valued your real estate on a day-to-day basis, you’d go nuts with anxiety as prices rose and fell wildly each day - that’s what happens with the stock market. It simply defies logic some days, but then the stock market is driven by emotion in the short-term, and fundamentals in the long-term.
Like Warren Buffett has said in the past, he would be happier if the stock market just closed for a year or two – looking at the market right now, I have to agree with him.
Right now there is great opportunity in the markets as, based on fundamentals, the market is historically very cheap and stocks bought now will do very well in 6 to 12 months. Yes, the market may even get a little cheaper before a bounce and the world moves on from debt crises and concerns over China, but in the end good companies bought now will provide significant return in the medium to long- term.
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