Editor's note: This is the fifth excerpt of an e-book on Apple by Jason Schwarz, an analyst at Lone Peak Asset Management in Westlake Village, Calif. Here are Part 1, Part 2, Part 3 and Part 4.
Let's take a moment to outline the key components of a good investment. Here is what I look for:
1. Economic Timing
: As far as I am concerned, economic timing is the only way to find conviction in the stock market. The basic philosophy of economic timing is built upon the premise that you should invest in stocks when the economy is improving and you shouldn't invest in stocks when the economy is worsening.
I apologize to all you brilliant investors out there who utilize your sophisticated strategies, but backtesting shows that investing really is that simple. Those who seek to employ any other strategy are swimming upstream.
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When the economy is improving, as it is now, I am on the lookout for the perfect growth vehicle to maximize returns. When the economy is worsening, it is no time to expect high returns and a book like this that suggests a stock may be on the verge of running should be put on the shelf. (If you want a complete explanation of the economic-timing strategy, read my book,
The Alpha Hunter
, set to be released by McGraw Hill in December 2009 or sign up for my investment newsletter service at
2. Market-Share Growth
: Is the company gaining market share or not? If not, my research on that particular stock won't continue and it's time to find something else. How rigid are the barriers to entry in your industry? Are you vulnerable to getting knocked out by competition? These are vital questions to ask when analyzing a stock. A company that can affirmatively answer each of these questions is a prime candidate to be in the portfolio.
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