Being a Great Stock-Picker

Boeing is not a unique case. Stock price fluctuation far exceeds business value fluctuation at most companies, including, for example, widely held, well-known behemoths such as General Electric (GE - commentary - Cramer's Take) and Citigroup (C - commentary - Cramer's Take). Sales have grown modestly at GE over the last five years (up 20%), while the stock has cut a wide swath, ranging from a nadir near $23 to a high near $60. Lately GE has traded at $37 per share.

Citigroup's stock quote has been less volatile than Boeing and GE, but the five-year high (about $54) is still double the five-year low (near $27). Meanwhile, the gross revenue at Citigroup has only slightly increased over the last five years -- it's up less than 5%.

Great stock pickers understand this simple fact: The purpose of the market is to provide liquidity, not to accurately price businesses. The central preoccupation of great stock pickers, then, is to identify and capture the spread when the stock value is materially below the business value.

Sound simple enough so far? Unfortunately, from here it gets a bit more complicated. I'll explain more next Tuesday in Part 2 of this column when I identify and explain the single most important characteristic that all great stock-pickers have.

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At time of publication, Alsin and/or ACM was long Boeing, although holdings can change at any time.

Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor and portfolio manager of The Turnaround Fund, a no-load mutual fund. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to [e-mail].