Thursday, June 26, 2014

Six Criteria To Identify Rule Breakers - As Per The Book From Motley Fool

I am half way through reading the ebook from The Motley Fool called "The Motley Fool Million Dollar Portfolio : How to build and grow a panic-proof investment portfolio " (authored by David Gardner and Tom Gardner). I like the style of their writing which is funny or foolish as the authors like to quote it. 

It is a 280+ pages of gem that filled with valuable strategies (from value to growth investing, dividend to small-cap investing). Even though the one that I am reading is 2008 edition but I find that the criteria and strategies are are relevant.

Being a small retail investor, I paid specially attention to the chapter (Chapter 7 - Risk takers and Rule Breakers) on finding untapped gems, they called it Rule Breakers. I reinterpreted the rule breakers as those smaller and undervalued growth stocks that has potential to be exploded into a main stream giant (in the future and if according to the plan). 

Also, they have listed down six criteria of how to identify such rule breakers which I am repeating it here (exact words from the book) :

1. Top dog and first mover in an important, emerging industry
2. Sustainable advantage gained through business momentum, patent protection, visionary leadership or inept competitors
3. Strong past price (stock) appreciation
4. Good management and smart backing
5. Strong consumer appeal (branding)
6. Grossly overvalued, according to at least one significant constituent in the financial media (this one is a bit weird but according to the author, this is to avoid investing in "obviously great companies)

Most of these criteria are deem common sense but I thought it is worth sharing it here. For more details about the book, you can head down to the National Library or check out the content from the Amazon below :


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