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).
- New management, products or technology, new acquisition, new event in industry as a whole.
- New management is the most effective.
- New products, events and acquisitions have to be sufficient importance to firm in question to increase future earnings substantially.
- Distinction should be made between gimmicky one-off products and others that are likely to be long lasting.
- New events, such as collapse of a competitor - short term. New legislation - long term.
- Added advantage of something new is that it provides a ready-made story for the stock. Most important when fundamentals are poor.
- When reading about a new major development, I think the likely effect it may have on existing portfolio and future selections.
- Something new - superb confirmation when all other criteria are satisfied.
To find out about something new, you can do the following:
- 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.
- Read the news so that you can find out new products, new developments and so on.
- 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.
In the next post, I will outline the signs of a company which have competitive advantage.
Slater, J. (2008). The Zulu Principle: Making Extraordinary Profits from Ordinary Shares (Revised 1st ed.). Petersfield, UK: Harriman House.