Fire Your Analyst

Here are the tools:

Analyze the analysts: Analyst buy/sell ratings and earnings forecasts tell you whether you have a viable value or growth candidate on your hands.

Know what a stock's valuation implies: Knowing the growth rate implied in a stock's current valuation tells you a lot about whether you should jump in with both feet or run for the hills.

Set target sell prices: The target price is the price you expect to sell a stock at if all goes well. It's the "reward" half of the risk-vs.-reward equation.

Analyze the industry: Before you spend time analyzing a stock, make sure it's in an industry with an acceptable growth outlook and not so competitive that none of the players is making money.

Analyze the company business plan: It's a dog-eat-dog world out there. Find out whether your stock has a viable product that can fend off the competition and a cost-effective way of getting it to market.

Rate the management: Does your stock's management have years of experience in the same business, or are the managers mainly executives drawn from unrelated industries recruited on the theory that a good manager can run anything? (Wrong!)

Check financial fitness: Even the threat of bankruptcy is bad news for shareholders, so you need to know if your stock is a bankruptcy candidate.

Analyze profitability: Just because a stock is reporting positive earnings doesn't mean that it's profitable enough to finance its expected growth.

Detect accounting shenanigans: Faltering growth translates to plunging share prices, which is something that no company exec cherishes. You need to know when managers are cooking the books to mask slowing growth.

Check ownership: Find out whether the smart money is avoiding your stock like the plague, or whether its shares are mostly in the hands of short-term investors waiting for the chance to dump their holdings.

Check the stock price charts: Sometimes heavy buying or selling by in-the-know investors is your first clue that something big is afoot. You need to know how to pick up clues from the charts.

Finally, Fire Your Stock Analyst tells you where to find the information needed to do the analysis and includes reproducible score sheets to aid your evaluation.

If this book is valuable, I owe it to the pros who found time in their busy schedules to describe their market-beating strategies to me, as well as the researchers who explained academic terminology and guided me through their often voluminous research reports. Also, special thanks to Standard & Poor's for providing me with historical data from S&P's Compustat database that facilitated my research.

Following the strategies that I've described won't guarantee that every stock you pick will be a winner. However doing so will certainly help you avoid making stupid mistakes and should improve your batting average. Good luck with your investing.