Growing Rich - Arabictrader.com

GROWING RICH WITH GROWTH STOCKS
cing evidence to suggest this international brand acceptance merits
a premium. What’s more, they enjoy a steady stream of new business
from markets around the world. Besides, it’s difficult to find companies
selling for PEs less than their growth rates today. If that were your
steadfast rule, you might not find anything to buy.”
Two other myths that have gone out the door in recent years: Don’t
purchase a stock if its price exceeds book value by four times, and
do the opposite of small investors, since they are always wrong. “In
terms of the first one (as Papp also pointed out), book value was a
useful gauge years ago when we were mainly an industrial society,
with manufacturing and extractive industries dominating the scene,”
Stovall surmises. “Now we are in a service and information economy.
Book value means more to an oil conglomerate than it does to a
Hewlett-Packard, Intel, or Microsoft. These companies have most of
their assets tied up in techniques, people, and patents. In addition,
we’ve had 17 new tax bills in the past 21 years. Many of them have
resulted in companies taking write-offs, which reduces book value,
but not necessarily the underlying worth of the company’s income
stream. As for ignoring small investors, that is a myth that once permeated
the floor of the New York Stock Exchange. Most professionals
felt this way. Has that ever changed! Small investors now have better
information and instant access to much of the same data as that enjoyed
by the professionals. Small investors have shown an amazing
ability to be on the right side of trades for several years now. They
buy steadily on weakness and hold on during downturns, which is
the smart thing to do.”
MEETING WITH THE FATHER OF VALUE
As an up-and-coming analyst and fund manager in the late 1960s,
Shelby Davis thought he could do no wrong. The market was in a
clear bull trend and he was riding high buying the “go-go” stocks of
the moment. The price he paid for these companies was of little concern,
since he reasoned they would keep going up no matter what.
But this belief was shattered by the 1973-1974 bear, which virtually
wiped out all of the gains he had achieved investing in these stocks
in the preceding years. Humbled and in need of guidance, Davis sought
advice from a man who is one of the most admired value investors
the world has ever known, Benjamin Graham. As we know, today
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