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Martin Yau is a Contrarian Investor who invests in stocks that are fundamentally and financially strong but other investors ignore due to their pessimistic views to gain superior returns compared to the overall market He has been investing in stocks since August 2004 and has very good knowledge... More
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Does the Optimal Portfolio deliver the best Performance in the Stock Market?
  • How to find 'something new' in a company? 0 comments
    May 27, 2010 6:40 PM
    In the previous post, I outlined the strategy to find growth stocks. One of the criteria mentioned was finding something new, which is desirable.

    In this one, I will go through the general signs of something new occurring in a company and think of the likely effects on the stock, for example, new event, new management, new product and so on. The signs are taken from Slater (2008).
    1. New management, products or technology, new acquisition, new event in industry as a whole.
    2. New management is the most effective.
    3. New products, events and acquisitions have to be sufficient importance to firm in question to increase future earnings substantially.
    4. Distinction should be made between gimmicky one-off products and others that are likely to be long lasting.
    5. New events, such as collapse of a competitor - short term. New legislation - long term.
    6. Added advantage of something new is that it provides a ready-made story for the stock. Most important when fundamentals are poor.
    7. When reading about a new major development, I think the likely effect it may have on existing portfolio and future selections.
    8. Something new - superb confirmation when all other criteria are satisfied.
    I believe that finding a stock that has one or more products or services which can be easily replicated and are long lasting, new management of excellent caliber, favorable legislation towards the industry, collapse of a competitor and a major new development will be obviously be beneficial to the investor. However, these stocks with these combinations in addition to satisfying all of the criteria in the previous post are quite rare so be prepared to be flexible. The most important thing is that the stock has to satisfy all of the mandatory criteria.

    To find out about something new, you can do the following:
    1. When you are out and about, take note of the business environment by observing, for example, your friend's comments on a new product and service.
    2. Read the news so that you can find out new products, new developments and so on. 
    3. Regarding new management, one of the good methods to to a search on them to find out their backgrounds in more detail so that you can be more certain if they are of good caliber.
    After doing the above, you can research the companies in more detail to see which ones have fit the criteria.

    In the next post, I will outline the signs of a company which have competitive advantage.

    Source:

    Slater, J. (2008). The Zulu Principle: Making Extraordinary Profits from Ordinary Shares (Revised 1st ed.). Petersfield, UK: Harriman House.
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