Your Next Great Stock
02/01/2008 12:00 am EST
In this time of extreme market and economic volatility, Jack Hough’s new book hits the spot for investors who are serious about searching for and identifying solid stocks issued by strong companies, and holding them for the long-term.
Every stock maven has a system. Some are pretty silly, based on hemlines, elections, headaches, or football, and Hough debunks many of these so-called ‘sure things’ as the myths that they are.
Instead, he offers a common-sense approach to using the stock screening tools that are widely available—and often at no cost to you—to build your own system for finding good stocks.
Hough’s book is an easy read, but doesn’t offer a no-work, easy solution to investing. Instead, he takes the reader on a proven path that will require just a small effort to select and develop a screening system that works for you.
Hough first makes the case for why you should own stocks instead of:
• Turning your money over to the professional fund managers, who—for the most part—seriously underperform the market
• Investing all your funds in real estate, which over time, has about a zero return
• Opting for bonds or commodities, whose long-term performance has also lagged that of stocks Although, he does advise readers to make sure their portfolios are well-diversified with a variety of assets.
To prove his point that stock screening is successful, Hough takes the reader through a history of mathematical finance, probability theory, and portfolio theory, which fortunately, he explains quickly and easily.
Within this explanation, he introduces the historical and current financial educators and gurus who argue against the investor’s ability to beat the market and demonstrates why their theories are wrong. Then, he gets to the point—the clues that will help investors predict large stock returns.
Hough devotes the latter two-thirds of his book to defining those clues and strategies that have proven themselves over the years, including price-earnings ratios, earnings announcements, price performance, research and development, and insider buys.
Hough also references non-wealth maximizing behavior and strategies and warns against many of the pitfalls that investors subject themselves to, including depending on the advice of others instead of doing your own research and screening.
He provides a helpful discussion of financial statements, by avoiding the usual ivy-tower explanations and instead, showing how his clues can easily be derived from these important tools.
The last half of the book is extremely valuable, as it covers Hough’s favorite stock screens, including the various Web sites at which they are available. And he encourages readers to build upon these screens to identify the right investments for their personal goals. This is information that many investors need but just don’t know how to find.
He also lists strategies to avoid and tips for separating the good from the bad. And lastly, he provides a comprehensive look at some of his favorite strategies, which he also makes available—as free screens—on his Web site.
I think this book is a valuable resource for any investor who wants to learn more about researching stocks and who is willing to put in a little time and thought to building a successful portfolio of stocks for the long-term.