A Little Book for Picking Top Stocks: How to Find Hidden Gems2023. Martin S. Fridson, CFA. John Wiley & Sons, Inc.
Editor’s Note: To keep our book review selection process fair and unbiased, CFA Martin Fridson was not involved in the decision to review a book, or in the writing and editing of this review.
When I first saw the title of the CFA’s latest masterpiece, Martin Fridson, I wondered what the focus could be other than hitting pay dirt and picking winning horses. Given my deep background in fixed income analysis, I initially believe that you can find a secret advantage by using strong credit analysis or by tracking the rise and fall of corporate credit ratings. I was. But what if the company doesn’t have a credit rating, or the rating is very low? It presents a novel approach that has not been standardized.
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do you want to go crazy with identification of Top performing stocks. You can think of this instant gratification, and it certainly is! They are essentially spoon-fed the same information from companies – especially when it relates to forecasting quarterly or annual EPS – setting price targets and making Buy or Sell calls. The authors note that the majority of stock ratings fall into the buy/hold category, with sell recommendations rarely seen. Is there really a rating like Hold that could be a “wink-wink” sell? To do. But can we trust such analysis to hit home runs for the best performing stocks?
Fridson details the fundamentals and industry-specific stories of the top stocks in the S&P 500 Index for each year from 2017 to 2021. It also delves into the importance of identifying free cash flow and estimating its trend relative to net earnings (EPS). GAAP (generally accepted accounting principles) earnings. Another questionable item to consider is “revenue management,” which many companies use to “smooth” reported earnings. In 2018, when the S&P 500 stocks returned -6.24%, he returned 80% in the “worst case”, and a unique detailed analysis of each stock is presented. Readers will recognize each name, but may be surprised to learn the performance catalysts Fridson identifies. Items that stood out above the rest were increased free cash flow generation, credit improvement (generally from bad to bad), restructuring, special dividend selection for continued dividend increases, and proprietary markets. environment. Identifying past winners and understanding his point of exceptional price performance pulse provides clues to follow later in the book.
please keep in mind non– The S&P 500 stocks that have performed astonishingly over the same period. Fridson details his 2019 situation from 2017. Catalyst is similar to the name of the larger strain. However, we’re dealing here with small capitalization (but not always), lack of consistently positive earnings, and perhaps a small number of publicly traded shares. Reviewing the records of the top stocks in the years not included, A little book for picking top stocksIn 2020 and 2021, we will find anomalous catalysts that we could not identify before spending time in the Sun. In 2020, Nio Inc. (NIO) rose his 1,103% to become the only large-cap stock among the top 10 non-S&P 500 stocks for the year. And the top stock for 2021 is GameStop (GME), up 815%.
The book crescendos into a detailed quantitative and qualitative presentation of the second half. The quantitative characteristics presented are surprisingly grounded and provide a sort of green light for the reader to begin their own analysis. These are based on stock price volatility (higher is better), EPS forecast variance (higher is better), bond rating, and market capitalization. As discussed at length, readers may be surprised to see “EPS Variance” on the list, given that EPS is typically very tight in Wall Street surveys. Fridson and researcher John Lee devised a surprisingly simple statistic, the Fridson-Lee statistic. Noticeably larger EPS estimation variance is observed for the top stocks compared to the “average” S&P 500 stock (i.e., the 250th stock). Readers will also enjoy the “blown plausible hypotheses” being discussed and explanations for why they don’t work.
Fridson’s qualitative attributes focus on external pressures for change, dynamic technology, potential credit improvement signals, and competitive advantage.do you hear the name TeslaReaders will fondly recall the 2020 story — even though that particular year started with more sell than buy valuations on stocks.?
fridsons A little book for picking top stocks It encourages analysts and investors to do unfamiliar things. The goal doesn’t have to be the best stock price performance of the year, but it does get investors closer to satisfying results. He said the process should not be layered across the entire portfolio, but could be implemented in parts of the portfolio that could be dedicated to higher risk and potentially higher rewards. And you can have a lot of fun in the process.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, and the opinions expressed do not necessarily reflect those of CFA Institute or the author’s employer.
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