Growing Rich - Arabictrader.com

GROWING RICH WITH GROWTH STOCKS
sit on them. Some of the stars were Polaroid, Xerox, Avon, IBM, and
several drug and food companies. They were the biggest and best
around. Like a chain letter, the concept caught on and institutions
poured money into the ‘Nifty 50’ during 1971 and 1972. These stocks
were selling at 30, 40, even 50 times earnings, even though they were
growing only about 15 percent a year. It was a tremendous party atmosphere
and only the supposed dummies didn’t participate. But like
a chain letter, the day eventually arrived in 1973 when some people
began to realize ‘The Emperor Has No Clothes.’ The day of reckoning
came and these stocks declined by as much as 60 to 80 percent from
their highs. When the disaster finally settled, people realized that
pouring all that money into 50 stocks was pure insanity.”
Robert Stovall remembers that period well. Now, he often creates
a shopping list in his head full of stocks he would love to buy, but
only if the price is right. “When you’ve been at this for as long as I
have, you develop an enormous memory bank in your brain full of
companies you would like to own, but are willing to wait for to avoid
paying too much,” he explains. “General Electric is a good example
of a stock I think everyone should have a little bit of in their portfolio.
The price of GE frequently fluctuates, and I have certain price points
in my mind where I’m comfortable adding to my position in this
company. You already know I’m not a fan of market timing and advise
against it. However, the one benefit to paying attention to the market
and the direction of the tape is that you can instantly see when the
stocks you are eyeing come down to the levels you want to pay for
them.”
LOOK FOR HIGH GROWTH, LOW PES
One of Stovall’s mantras is that he likes to invest in companies
with high growth rates compared to their price-earnings (PE) ratios.
“Unfortunately, that’s difficult to do these days, especially with the
large well-known corporations, because they’ve been picked over so
well,” he laments. “However, if you can find a stock selling for 18
times earnings with an underlying annual growth rate of 22 percent,
that’s certainly more attractive than an 18 percent grower selling for
22 times earnings.”
Roy Papp has a similar discipline. “I am oriented toward highquality
growth stocks, and I don’t want to pay impossibly high prices
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