Fast stocks, fast money: how to make money investing in new issues and small-company stocks

433 Pages·2000·8.55 MB·English

by  Robert S. Natale

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FAST STOCKS,
FAST MONEY
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FAST STOCKS,
FAST MONEY
How to Make Money
Investing in New Issues
and Small-Company Stocks
Robert S. Natale
McGraw-Hill
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DOI: 10.1036/0071376666
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Contents
Preface ix
Acknowledgments xiii
Section I 1
1 Small Stocks,Big Profits 3
Small Stocks Can Make You Rich 4
History Points to Small Stocks 5
Starting Early Helps a Lot 7
Small Stocks Can Provide Good Returns Even If
Your Timing Is Off 7
There Has Never Been a Better Time to Buy
Small-Cap Stocks 7
The Most Consistent Way to Beat the Pros 11
2 How Big a Bet Should You Make in Small Stocks? 13
With Small Stocks, Time Reduces Risk 14
Four Considerations When Investing in Small Stocks 15
Asset Allocation Decision Making 18
Opportunity Costs of Not Investing in Stocks 18
3 Limiting Risks and Beating the Market 23
Active Portfolio Management with Small Stocks 25
Creating a Diversified Portfolio 26
Timing the Market Is Rarely Smart 27
The Great Variables: Inflation, P/E Ratios,
and Future Earnings 28
v
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vi CONTENTS
The Rule of 20 29
Based on the Rule of 20, Stocks Are Expensive, But... 34
Market-Timing Summary 36
Backdrop for Stocks in the Late 1990s 36
Small Stocks Will Outperform Early in the
Century 38
Review of Market-Timing Pointers 39
Sector Betting: Another Side Bet That Can Improve Returns 39
Section II 43
4 Investing in IPOs:Finding the GAPs and IBMs
of Tomorrow 45
IPO Investing Rule 1: Sell Within Three Months
of the Offering 46
IPO Investing Rule 2: Invest in Industries at the Start
of an IPO Cycle 57
IPO Investing Rule 3: Sell During a Market Correction 60
5 How IPOs Are Sold 67
The First Look at the Deal 67
How a Deal Is Marketed and Sold 67
Pricing the Deal 69
The Underpricing Puzzle 70
Blind Pools Are for Fools 73
Calls from Brokers About IPOs: Buyer Beware 73
Advice for the Small Investor 75
Overview of the Underwriting Process 76
6 Decoding the Prospectus 81
The Prospectus as Detective Novel 82
Cover Page 92
Prospectus Summary 93
Company Description 95
Risk Factors 95
Use of Proceeds 96
Dividend Policy 96
Capitalization 97
Dilution 97
Selected Consolidated Financial Data 97
Management’s Discussion and Analysis of Operations
and Financial Condition 98
CONTENTS vii
Business Description 99
Management 100
Principal and Selling Stockholders 103
Shares Eligible for Future Sale 103
Financials 105
7 IPO Pointers on Specific Industries 107
American Depositary Receipts (ADRs) 107
Banking 108
Biotechnology 110
Closed-End Funds 112
Computer Networking and Telecommunications 114
Computer Services 116
Computer Software 116
Cyclical Companies 119
Internet 121
Oil Exploration, Production, and Services 123
Real Estate Investment Trusts (REITs) 125
Reverse Leveraged Buyouts (LBOs) 127
Semiconductors and Semiconductor Equipment 130
Special Retailers 133
Wireless Telecommunications Services 137
8 How to Get Allocations of Choice Deals 139
Targeting the Right Brokerage House 139
Developing the Right Relationship with the Right Broker 142
Developing Relationships with More than One Broker 145
Paying for Research and Good Advice 146
Placing an Order 146
Reading Between the Lines When a Broker Calls 147
Telling Whether a Broker Is Reputable 149
Section III 151
9 Buying Small-Cap Stocks:The World According to GARP 153
Watching the STARS for Investment Guidance 154
Growth at the Right Price (GARP) 158
Standard & Poor’s Fair Value Model 159
Standard & Poor’s Platinum Portfolio: A Perfect Marriage 160
Independent Corroboration 161
10 GARP and the Individual Investor 169
viii CONTENTS
11 Growth Versus Value 197
Measuring Growth 198
Assessing Value 199
Price/Book Value as a Measure of Growth and Value 199
Relative Performance of Growth and Value Stocks 210
12 How to Buy a Growth Stock 213
The Growth Paradox 214
Being a Growth-Stock Contrarian 215
Going for the Safest Small-Cap and Midcap Pure Plays 217
Investing in Growth Stocks the Graham and Dodd Way 221
Small-Stock Momentum Investing:The First Refuge
for Scoundrels 225
Investing in Emerging Country Markets 228
13 How to Buy Value Stocks 237
Avoiding Cheap Stocks That Deserve to Be Cheap 238
Looking for Small Increases in Earnings Plus P/E Expansion 240
What to Look For in a Value Stock 241
Screening for Value Stocks 247
14 Knowing When to Sell 265
When to Cut Back Your Stock Exposure 266
Hedging the Portfolio 269
Most Stocks Are Not the Marrying Kind 269
Important Sell Disciplines 272
15 Putting It All Together:How to Research the Latest Tip 275
Phase 1: General Research 276
Phase 2: Company Analysis 277
Phase 3: Valuation Analysis 279
Finding Investment Ideas 282
IPO Information 283
Fitting the Level of Research to the Available Time 284
Appendix MS-DOS Versus Teddy Ruxpin 293
Index 403
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