I help people
build assets.

OR

Welcome

I was a licensed stockbroker from 2001 to 2007, managed private money for almost a decade, and continue to publish my thoughts on thousands of stocks each year. Business ownership remains the most lucrative way to build wealth – just ask Warren Buffett, Jeff Bezos, or Elon Musk – and owning publicly traded stocks is the best way to do it without taking excessive risk.

Below, I’ve put together a step-by-step guide to better investing based on more than 40,000 hours of work across the capital markets. Maybe it will help you make better decisions, beat the market, and compound your money faster. First, a little back story. From 2002 to 2018, I published real-time trade alerts to a select group of individual and professional investors.

Results vary based on individual trading. Stocks bought on publication date and sold at year end documented cumulative gains in excess of 6,000%. Gains on my best ideas based upon the initial purchase on publication date and held until 2018 or acquisition. In 2018, I stopped publishing my monthly newsletter.

Read my stuff on GuruFocusSeekingAlpha, or right here.

  • +261% on Coinstar (CSTR)
    +1,092% on McDonalds (MCD)
    +7,750% on Apple Inc (AAPL)
    +1,495% on Williams (WMB)
    +1,788% on Universal Holdings (UVE)
    +903% on Boeing (BA)
    +214% on AutoNation (AN)
    +468% on Children’s Place (PLCE)
    +193% on Merck (MRK)
    +291% on Chubb (CB)
    +384% on Bank of America (BAC)

    +746% on Humana (HUM)
    +609% on Checkpoint (CHKP)
    +440% on Aflac (AFL)
    +784% on Conn’s (CONN)
    +457% on Employee Holdings (EIG)
    +521% on Ashland (ASH)
    +326% on Valero (VLO)
    +269% on Goldman Sachs (GS)
    +266% on Citrix (CTXS)
    +316% on Forrest Labs (FRX)
    +299% on Activision Blizzard (ATVI)

  • 2002
    NXTL @ $5.00
    WMB @ $1.88
    CHKP @ 14.53

    2003
    AAPL @ $14.03
    BKS @ $26.24
    SIRI @ $1.88

    2004
    CC @ $7.00
    ACF @ $2.75
    TYC @ $13.39
    KMRT @ $15.00
    MCD @ $13.75
    BA @ $25.84
    PLMD @ $18.03
    RIG @ $19.87
    CSTR @ $14.40

    2005
    NYX @ $18.50
    AN @ $15.21
    RT @ $21.92
    WMT @ $43.00
    DRL @ $8.06

    2006
    PEIX @ $12.15
    BUD @ $41.44
    MYG @ $17.22
    MOVI @ $2.07
    XJT @ $5.55
    TUES @ $12.35
    PIR @ $6.43
    BBBY @ $31.49
    SCT @ $4.05
    DRL @ $5.12
    MOVI @ $2.39
    VLTS @ $0.38
    USG @ $48.09
    SSD @ $27.01

  • 2007
    UVE @ $2.60
    VCI @ $13.75
    IVAN @ $1.25
    USO @ $44.00
    CORN @ $397.00
    THO @ $43.36
    WFC @ $34.00
    CORS @ $16.86
    ALL @ $52.09
    MTEX @ $7.98
    HOG @ $48.50
    ACF @ $11.55
    ABK @ $23.42

    2008
    LNY @ $18.11
    PLCE @ $19.20
    JOSB @ $22.60
    BAC @ $16.05
    MF @ $6.83
    AXP @ $40.86
    NYX @ $57.02
    IVAN @ $2.08
    MRK @ $21.16
    AIG @ $74.40
    BAMM @ $1.85
    GCI @ $10.87
    MSFT @ $18.16
    COP @ $44.66
    YZC @ $6.85

    2009
    GS @ $65.00
    DHR @ $50.33
    RIG @ $57.09
    ASH @ $11.02
    UNT @ $25.60
    CTXS @ $22.37
    AFL @ $15.48
    DXO @ $2.30
    USO @ $27.05
    HTE @ $3.44
    PGH @ $4.84
    AAUK @ $8.59
    SYY @ $22.34
    UGI @ $23.19
    FRX @ $22.53
    SAY @ $1.78
    QLTI @ $2.10
    HUM @ $29.64
    AGU @ $45.83
    EIG @ $8.40
    CB @ $39.56
    MIR @ $14.36
    KOL @ $21.16
    HS @ $10.98
    GME @ $21.89
    RGS @ $13.97
    EZPW @ $12.64
    PPDI @ $20.07
    NYB @ $10.77
    KR @ $20.57
    PCS @ $6.57

  • 2010
    PL @ $16.48
    AAI @ $4.95
    STEC @ $12.37
    HOTT @ $5.75
    ENDP @ $20.52
    VLO @ $17.89
    FUQI @ $15.73
    CONN @ $4.52
    CYPB @ $2.12
    BP @ $29.39
    RINO @ $12.29
    XING @ $1.56
    GS @ $138.06
    NOK @ $8.74
    XIN @ $2.56
    AEA @ $3.90
    RIG @ $46.21
    CSR @ $5.61
    ESI @ $54.00
    FUQI @ $6.30
    HQS @ $2.80
    RIMM @ $45.99
    CHNG @ $5.00
    VSEC @ $29.43

    2011
    GNK @ $15.16
    HRB @ $12.99
    TLCR @ $23.12
    FSIN @ $9.06
    PRLS @ $3.40
    WWE @ $12.02
    CSR @ $4.73
    KGJI @ $2.02
    CSCO @ $17.53
    C @ $44.58
    RIMM @ $41.82
    HPQ @ $35.90
    TI @ $11.89
    ZRAN @ $8.55
    NYX @ $33.19
    BCS @ $13.99
    LLEN @ $5.90
    MRO @ $30.97
    TAM @ $19.47
    CRU @ $11.52
    CPLP @ $6.20
    PTNR @ $12.00
    AFL @ $39.58
    VALE @ $27.50
    WHR @ $55.90
    DHR @ $41.97
    BBY @ $22.85
    CSC @ $26.13
    HXM @ $14.23
    WBA @ $32.85

    2012
    XIN @ $2.73
    MRO @ $29.27
    VALE @ $22.10
    HXM @ $12.40
    WAG @ $33.06
    BAC @ $5.72
    RAH @ $88.90
    RSH @ $6.95
    POST @ $26.82
    APOL @ $26.46
    PCS @ $6.53
    KRO @ $18.29
    SURW @ $21.39
    SCMF @ $2.71
    ABX @ $38.00
    DV @ $18.98
    ESI @ $30.90
    NXY @ $25.60
    JEF @ $15.99
    AGQ @ $43.45

    2013
    XIN @ $3.80
    AAPL @ $428.13 ($61 split-adjusted)
    EZPW @ $18.77
    SHLD @ $51.30
    BAC @ $12.10
    USNA @ $35.53
    ATVI @ $15.53
    EBIX @ $16.00
    ESI @ $14.50
    OUTR @ $49.60
    MSB @ $18.23

    2014
    CEO @ 154.03
    CSH @ 36.73
    CHL @ 47.85
    TNH @ 157.14
    JOY @ 52.14

    2015
    TNH @ 144.25
    SSL @ 33.36
    NSR @ 22.08
    CEO @ 138.96
    NOV @ 52.54
    FOSL @ 81.13
    XIN @ 3.11
    TTM @ 41.28
    PCP @ 200.51

  • 2016
    AVP @ 5.44
    AAPL @ 103.13
    CG @ 15.54
    GILD @ 77.68
    SCTY @ 19.24 (acquired)
    RAD @ 7.69
    WFM @ 31.66
    SRG @ 48.23

    2017
    XIN @ 4.92
    CBI @ 12.93
    DVA @ 57.32
    BBBY @ 28.01
    HIBB @ 13.20
    BGFV @ 7.15
    BOJA @ 12.50
    SDLP @ 3.64

Methodology

Over the years, I’ve turned the strategies and best practices of top money managers into models for better investing. Two factors almost always stand out: (i) Companies that grow their book value also see stock prices increase; and (ii) Assets that provide the fastest capital payback tend to be the best investments.

The following method has been refined through more than 40,000 hours of success analyzing and forecasting the world’s leading investments, and now forms the backbone for the majority of my business and investment decisions.

01. What is the current yield?
02. What is the future potential?
03. What is the margin of risk?

Payback Theory

Let’s say you live in a town with two bakeries for sale at $1 million each. Both offer similar products with almost exactly the same type of customer, and asset structure – one earns $100,000, the other $150,000. Which one do you buy? The one that has the highest yield, which in this case is the second bakery. In fact, if these numbers held up, bakery number two would pay you back in less than 7 years, a full 3 years ahead of the first one.

Earnings Yield

To know whether an asset is worth buying, you’d have to know the profit it generates compared to the price you’re paying. For example, if you buy a house for $500,000 and lease it for $2,500 a month, the annual yield before expenses is 6%. For publicly traded stocks, this yield is based on net income versus market value.

2008
Apple (AAPL)

Value: $76 billion
Profit: $6.1 billion
Yield: 8.0%

2018
Apple (AAPL)

Value: $1.01 trillion
Profit: $56 billion
Yield: 73.9%
on 2008 

Shareholder Equity

Shareholder equity is the difference between total assets and total liabilities – also known as book value. Companies that translate retained earnings to equity growth become more valuable. It is worth noting that legendary investor Warren Buffett has used book value to benchmark the value of his conglomerate Berkshire Hathaway for over 40 years.

Book value is a historic number, providing no information about the future prospects of a business, apart from demonstrating consistency. However, if every dollar in retained earnings can generate at least the same in market value, then the company has added value to shareholders. That’s why return on equity is such an important ratio to top value investors.

Even though Apple and Amazon are valued differently by the market, investors cannot overlook the ability of both companies to grow book value. No matter what strategy you follow, being able to find stocks attached to companies that can do this will virtually guarantee you make money in the market.

Apple (AAPL)

book value
2009: $5.02
2012: $16.99
2015: $22.53
2018: $25.81

stock price
2009: $13.74
2012: $59.79
2015: $111.44
2018: $169.23

Amazon (AMZN)

book value
2009: $6.23
2012: $18.04
2015: $26.39
2018: 64.84

stock price
2009: $55.74
2012: $175.17
2015: $314.75
2018: $1,169.47

Value Analysis

Analyzing both book value and earnings per share, investors can estimate the future value of almost any stock. Companies that have built brand power and strong competitive advantages tend to last longer. However, for an investment to meet a baseline for growth of 15% annually, certain traits still need to line up. Here is a list of my core tenets…

  • Consistent Growth in Sales
  • Consistent Growth in Earnings
  • Consistent Growth in Book Value
  • Debt to Income Ratio < 5x
  • Return on Equity Average > 10%
  • Operating Costs to Income < 75%
  • CapEx to Income < 75%
  • Gross Profit Margins > 25%

Investment Risk

Even the best investors on the planet lose money on certain assets, regardless of how intelligent or risk averse. Don’t make the mistake of trying to be perfect. The best way to limit risk in the stock market is to invest in businesses that are going to withstand the test of time. These are typically profitable and growing and bought at the lowest price multiple possible. Then diversify into as many of these stocks as you can find, and plan on holding them for the long-term.

If you’re not outperforming the S&P 500 Index over a 5 or 10 year period, you should place the majority of your assets into an Index Fund, and speculating on trades with far less capital. Again, there’s nothing wrong with trying to find the next Facebook or Priceline before they turn profitable, but while you do it, make sure you’re building wealth with the market too.

If you want to consistently make more money in the stock market, follow JP’s strategy and advice.

Kyle H. – Morgan Stanley

Investment
Guide

The following is for investors with a basic understanding of the financial markets and that have experience making their own trades.

01. Stock Screen
02. Value Analysis
03. Stock Selection
04. Portfolio Management
05. Accelerated Strategies

Stock
Screen

The goal is to narrow down a list of ideas to analyze. You can always skip this step and opt for news announcements or pick brands that you already know. For the purpose of this guide, we’re using the screener at Finviz, but please use this criteria with any screener you want.

Basic Screen

  • P/E Ratio < 15
  • Forward P/E < 15
  • EPS Growth > 0% (5yr)
  • Sales Growth > 0% (5yr)
  • Gross Margin > 25%
  • Return on Equity > 10%
  • Average Volume > 100k

View the Results

Value
Analysis

Valuation is not an exact science, which is why even the best investors lose money on trades, and different stocks garner different metrics based on industry, business model, growth rates, trader perception, etc. With that said, the upward trend in financial performance is always a correlation to stock price appreciation. The goal is to find companies that have these characteristics and buy them when the stock price falls below a specific threshold, which will be covered in the next section. I typically use Morningstar for financial data.

  • Consistent Growth in Sales
  • Consistent Growth in Earnings
  • Consistent Growth in Book Value
  • Debt to Income Ratio < 5x
  • Return on Equity Average > 10%
  • Operating Costs to Income < 75%
  • CapEx to Income < 75%
  • Gross Profit Margins > 25%

Apple (AAPL)

Assets
2009: 47,501
2012: 176,064
2015: 290,479
2018: 367,502

Liabilities
2009: 15,861
2012: 57,584
2015: 171,124
2018: 240,624

Equity
2009: 31,640
2012: 118,210
2015: 119,355
2018: 126,878

Revenue
2009: 42,905
2012: 156,508
2015: 233,715
2018: 247,417

Gross Margins
2009: 35.2%
2012: 43.9%
2015: 40.1%
2018: 38.3%

Net Income
2009: $6,119
2012: $41,733
2015: $53,394
2018: $53,318

Stock Price *
2009: $12.27
2012: $57.86
2015: $110.38
2018: $169.23

Amazon (AMZN)

Assets
2009: 13,813
2012: 32,555
2015: 65,444
2018: 126,362

Liabilities
2009: 8,556
2012: 24,363
2015: 52,060
2018: 94,899

Equity
2009: 5,257
2012: 8,192
2015: 13,384
2018: 31,463

Revenue
2009: 24,509
2012: 61,093
2015: 107,006
2018: 193,194

Gross Margins
2009: 22.3%
2012: 14.2%
2015: 20.5%
2018: 23.1%

Net Income
2009: $645
2012: ($39)
2015: $596
2018: $3,938

Stock Price
2009: $51.35
2012: $173.10
2015: $310.35
2018: $1,169.47

*split adjusted
USD in Million except per share data

Stock
Selection

Investing is an accretive endeavor. Over time, you should have a working knowledge of many stocks. Companies that have a positive value analysis (from above) may not be worth an investment the first time you analyze them. The most important tenet in stock selection is to do it based on the facts and not emotion. On the Finviz Screener you can sort the columns. I tend to sort by industry or P/E ratio and then select the companies that I do not already know pretty well and look deeper when the stock has been down or flat in the last year.  In fact, that’s the only time I ever look at the chart.

Buying Criteria

  • Positive Value Analysis
  • Trading near 52wk low
  • Priced for 100% Growth

Long-term stock price appreciation is ALWAYS tied to financial growth. Estimating a company’s future earnings, book value, and cash flow provides a baseline to use when any multiplier is applied. Multiples are not static numbers, fluctuating with market volatility, industry trends, and company specific dynamics.

Microsoft (MSFT) 

Microsoft traded with a 10x earnings multiple in 2008, trailing the S&P 500 average; however, by summer 2018, it’s P/E ratio was 27.50. In the same time, the company’s market capitalization increased from $172 billion to over $757 billion. The 340% rise was attributed to both financial performance and multiple expansion.

Future Estimates

Don’t chase multiple expansion as it relates more to macro events that are out of the control of most individual organizations. Focus on financial performance and understand that stocks are priced based on future expectations as much as past results, and it’s the future financial results that investors must focus on.

  1. Historical Growth Rates
  2. Future Earnings Estimates
  3. Future Book Value Estimates
  4. Future Market Value Estimates

Again, market value is priced against a multiple of the company’s financial attributes. While growing the top line is necessary to survive, that growth doesn’t always translate into real value creation, which is why earnings, cash flow, and book value estimates are the important distinctions to estimating future market value. One way to do this is taking the Current Value multiplied by the Historic Growth rate discounted by 5% or 6% to yield a conservative estimate of future value, then multiple that number by its historic multiplier average to get a future value estimate.

Once you have some numbers to work with, it’s time to start asking questions like the following. Will the company be around in 20 years? How long can the company continue this growth? Can it realize even half of its current growth rates? Will its products or services be relevant in 5 or 10 years? If not, could the company pivot? From these you can start to form a mental construct for every future analysis.

Baseline Potential

For the time and risk you take on finding stocks and managing money, I believe that you should only buy into stocks that can product, at a minimum, 15% annualized returns from the investment. That equates 100% over a 5 year period and 300% over a 10 year period. Otherwise, buying an index fund, if you have the capital, rental units in a major city would yield better returns than inflation.

To that note, stocks are typically the most liquid investment vehicle, and at anytime can be sold for a profit or loss. Investing for the long-term is different than holding an individual stock for the long-term. Remember that every company’s value eventually levels out, at least for a period of time, and if you get too romantic about it, you may miss other opportunities.

Case in point, February 2008, Coca-Cola was valued at roughly $100 billion, which at the time was slightly higher than Apple’s market cap. Fast forward ten years and as of 2018, Apple had a market capitalization over $900 billion, making it more than $725 billion more valuable than Coca-Cola. Moreover, the same stagnant price growth will happen to Apple at some point in the future.

The point is that a great investment one day may not be so great on another, even if the company itself is spectacular.

Portfolio
Management

Remember that most stocks will not move in a straight line upwards or downwards. In fact, some of the best investments will lose as much as 50% before appreciating. Portfolio management is necessary to avoid the risk of total loss. And, owning a portfolio of 20 – 30 stocks provides a level of diversification that is close to most index funds.

Equal Weighting Strategy

Divide your total investment capital into at least 20 positions giving them equal weighting regardless of their size. Then buy and hold each stock for one year; sell the losing positions before the one year mark and sell the winners after the year mark, for tax benefits. For example, if you have $10,000 and plan to invest in 20 new companies this year, each position would involve an investment of $500. Just add a zero for your own asset level.

Warren Buffett Strategy

Warren Buffett loves owning the right stocks forever. With this strategy, choose the stock you want to own, put all your available cash into the stock, add to the position over time, and repeat with a new stock. The idea here is that if you “put all your eggs in one basket,” you are more likely to feel certain about the value of that investment and do your research before making any investment at all. In fact, isn’t this what people do with their biggest asset? Owning a home is the major asset for most people. And, most homeowners do a high level of research for years before buying.

Bifurcation Strategy

This strategy involves splitting your portfolio into two parallel operations working with one another to create the highest rate of growth possible. As a base, use your cash to build a portfolio of stocks that you like. Then use leverage against the stock positions to trade option contracts and arbitrage situations  to maximize your ROI. (see accelerated strategies)

Dollar Cost Averaging

If you’re buying companies that you think are going to be much more valuable long term, you will experience short term pain. Anytime you find that a company can produce above average investment performance based on thorough analysis, you should consider owning it, regardless of whether you already own it at a different price. I can’t tell you how many times I’ve been in a stock at $1x and it dropped to $0.60x only to get back to $3.00x. If it’s down and you believe in its long term prospects, buy more at the lower price using the same amount of capital you initially bought in with.

Accelerated
Strategies

Leveraging a portfolio’s cash positions to make trade for short-term gains is something that great money managers have always done; however, using leverage presents its own risks. For this guide, we’ll cover some strategies to both protect and accelerate your year over year returns.

Writing Covered Calls

When you write (i.e. sell) a Covered Call Option, you give the right to someone else to take the stock away from you. This is beneficial when you already own a stock and want to make money while waiting for the price to reach a specific level. For example, if you own XYZ at $10 and write a call at $12, you collect a premium from the contract. If the stock is called away at $12, you keep the premium and the $2 profit. If the stock doesn’t reach $12, you still keep the premium. Writing covered calls is a great way to exit positions when the stock price is relatively stable.

Writing Naked Puts

When you write (e.g. sell) a Put Option you provide the right for someone else to give you the stock. This is beneficial if you want to own a specific company’s shares at a specific price, but the stock is not yet trading at that price. For example, if XYZ is trading at $10 and you want to own it at $7.50, you can write a put at $7.50 and collect a premium from the buyer who may be trying to protect his/her position in the stock. Naked put writing is a great way to buy into positions during volatile markets. Writing puts is a great way to get paid to wait for the right price in stocks you want to own.

Risk Arbitrage

Arbitrage arises from corporate activity. During a typical year, there are hundreds of corporate mergers taking place. It’s the nature of the business. In these trades, there is a specific price that is agreed upon by the parties before the buyer conducts due diligence. This price is rarely reached before the deal actually closes, leaving a percentage of profit to the investor. The risk with arbitrage is associated with the deal not closing. So, always keep up to date on events that surround the deals you trade. The rate of return will be different for each situation. For instance, if XYZ Corp. is paying a 25% premium for ABC Inc., and if the two companies are merging in 4 months, you will receive an annualized return of roughly 90% as long as you can put the money back to work in similar deals.

Disclaimers: I, Jonathan Poland, (“JP”) am not a registered investment adviser. The information on this website and its premium products is not intended to be, nor does it constitute, investment advice or recommendations. In no event shall I be liable to any customer, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on this website, or relating to the use of, or inability to use, this website or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. Past performance does not guarantee a similar outcome. Data provided by Finviz and Morningstar.

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I spent the better part of 15 years analyzing and forecasting the world’s leading investments. Today, I’m using that skill set to build my next venture.

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