Below you can find the main conclusions of the book “One up on Wall Street”.
Recognize the main six categories of investments.
Stalwarts: These are companies in a market that is relatively stable but still companies can make quite some profits.
Cyclicals: These companies make earnings related to their business cycle. This means that companies which are
Fast growers: High innovative markets with a lot of high profits but also a lot of risk. Return and risk go hand in hand.
Slow growers: These companies are part of industries that are not growing a lot also characterized by low innovation. Hence, there is not much room for improving earnings in these type of markets.
Asset play: companies with a lot of assets which are worth more than the current stock price. These are bargains.
- Earnings and assets make a company valuable and a worthwhile investment.
- The value of a company comes from the earnings its assets make.
- Steps for investments:
- Determine the category the company belongs to (see list above).
- Use the Price/Earnings ratio to compare with others in that category and whether it is overpriced or underpriced.
- Investigate what the company is planning to do to increase earnings.
- Also investigate the market it is operating in. Is it potentially going to grow or not?
- Investigate the financial reports.