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David Trainer
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David is CEO of New Constructs (www.newconstructs.com), an independent research that specializes in unearthing key insights from the Financial Footnotes of Annual Reports. Having analyzed over 50,000 annual reports and their Financial Footnotes, New Constructs research regularly produces Hidden... More
My company:
New Constructs
My blog:
Hidden Gems and Red Flags
My book:
The Valuation Handbook
  • How To Make Money Picking Stocks 0 comments
    Aug 28, 2012 1:06 PM

    The best long-term strategy for making money in the stock market is: "Buy low expectations and sell high expectations."

    Sounds easy…but it is not easy…or everyone would do it, right?

    There are two key challenges to executing this strategy:

    1. Measure the true profitability of the business, which requires translating accounting data into economic earnings, to understand its historical cash flows.

    2. Measure the future cash flow expectations embedded in the stock price.

    Understanding the expectations for future cash flows embedded in stock prices is not possible with accounting data or any ratios (e.g. P/E, EBITDA, etc) based on accounting data. You need a dynamic discounted cash flow model to measure the expectations embedded in stock prices.

    Leveraging our patented research platform, we build and update thousands of economic earnings and discounted cash flow models daily, which is why we have confidence in our stock picks.

    For more details on how we find stocks with "low expectations" as well as super-high expectations, see Investment Strategy 101.

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