The Investing Book You Haven't Read

As a do-it-yourself investor, I love to read investing books. However, there are only a few books that have really had great educational value, the rest were merely entertainment.

Here are the books which have helped me the most:

1. One Up on Wall Street, by Peter Lynch
2. The Intelligent Investor, by Benjamin Graham
3. Poor Charlie's Almanack, by Charles Munger
4. Common Stocks and Uncommon Profits, by Phil Fisher
5. What Works on Wall Street, by James O'Shaughnessy
6. See below.

Most of these books you've probably heard of or read yourself. If you haven't read them, I suggest you do if you plan on investing on your own. However, there's one more book (6) that also goes on this list that most people haven't read. This book, in my opinion, is essential to the go-it-alone investor. The book is called "100 to 1 in the Stock Market," by Thomas Phelps. The only problem is the book is out of print and hard to find. Your best bet is borrowing it from your local library.

Thomas Phelps offers some good advice as to what to look for when trying to find a 100- to-1 investment:

1. Inventions that enable us to do things we have always wanted to do but could never do before.
2. New methods or new equipment that helps people do commonplace things easier, faster or at less cost than ever before.
3. Processes or equipment to improve or maintain the quality of a service while reducing or eliminating the labor required.
4. New and cheaper sources of energy.
5. New methods of doing essential jobs with less or no ecological damage.
6. Improved methods or equipment for recycling the materials used by civilized man instead of making mountains of waste and oceans of sewage.
7. New methods for delivering the morning newspaper without carriers or waste.
8. New methods or equipment for transporting people and goods on land without wheels.

He even gives 365 examples of 100-to-1 stocks (from 1932-1971) which could have turned $10,000 into $1,000,000 if bought right and held tight. Some of the more familiar of these include:

• J.C. Penney Co.
• Deere & Co.
• Abbott Laboratories
• Dr. Pepper
• Lockheed
• Greyhound Corp.
• Philip Morris
• Merck & Co.
• Goodyear Tire & Rubber
• Motorola
• International Business Machines
• Johnson & Johnson

These stocks all gained at least 100x their original value and some obviously much more.

Let's say you decided to invest using Mr. Phelps' method using $10,000 (+any additional money for fees). Furthermore, say you decide to devote a year to trying to uncover 25 stocks which you thought fit the bill as 100-to-1 type companies. After this, you divide your money equally into the 25, buying $400 of each company, and hold them for 20 years. If you only identified 3 out of 25 stocks that went 100-to-1, and say the rest went to zero, even factoring in that year you were looking for the stock, you would have a compound annual growth rate of 12.56%, and $120,000.

Here is the CAGR for identifying 1 out of 25 to 10 out of 25:

1. 6.82%
2. 10.41%
3. 12.56%
4. 14.11%
5. 15.33%
6. 16.34%
7. 17.20%
8. 17.94%
9. 18.61%
10. 19.20%

Even identifying 2 out of 25 is nothing to scoff at, which beats the average S&P 500 return, including dividends, by ~1%. Not to mention, this method does not include the dividends you might gain from the companies you invest in.

This method, just like any other, is not fool-proof. However, it really requires no maintenance and beats the market quite well just by identifying 2 of these 100-to-1 stocks.

"Our favorite holding period is forever." -Warren Buffett