20 Insights from the Book ‘Superperformance Stocks’('초실적주라는 ' 책의 20가지 통찰력)

20 Insights from the Book ‘Superperformance Stocks’('초실적주라는 ' 책의 20가지 통찰력)

If you read Jesse Livermore’s “How to Trade in Stocks” from 1940, Nicolas Darvas’s ‘How I made 2M(백만) in the stock market” from 1960, Richard Love’s “Superperformance Stocks” from 1977, William O’Neil’s early version of “How to make money in stocks” from the 1990s or Howard Lindzon’s “The Wallstrip Edge” from 2008, you will realize that after so many years, the main thing that has changed in the market is the names of the winning stocks. Everything else important – the catalysts, the cyclicality in sentiment, has remained the same.

1940년 Jesse Livermore의 “How to Trade in Stocks”, 1960년 Nicolas Darvas의 'How I made 2M in the stock market, 1977년 Richard Love의 “Superperformance Stocks”, William O'Neil의 초기 버전 “How to make 1990년대의 돈”이나 2008년의 Howard Lindzon의 “The Wallstrip Edge”를 보면, 오랜 세월이 지난 후 시장에서 가장 많이 변한 것은 우승한 주식의 이름이라는 것을 알게 될 것입니다. 다른 모든 중요한 것 - 촉매, 감정의 순환성은 동일하게 유지되었습니다.

Here are some incredible insights from Richard Love’s book ‘Superperformance Stocks’. In his eyes, a superperformance stock is one that has at least tripled within a two-year period.

다음은 Richard Love의 책 'Superperformance Stocks'의 놀라운 통찰력입니다. 그의 눈에 Superperformance Stocks은 2년 동안 최소 3배 이상 증가한 주식이다.

 

1. The first consideration in buying stock is safety.

주식을 살 때 가장 먼저 고려하는 것은 안전입니다.

 

Safety is derived more from the good timing of the purchase and less from the financial strength of the company. The stocks of the nation’s largest and strongest corporations have dropped drastically during general stock market declines.

안전은 구매 타이밍이 좋으면 더 많이, 기업의 자금력에서 덜 파생된다. 일반 증시 하락기에 국내 최대·강자 기업들의 주가가 큰 폭으로 하락했다.

The best time to buy most stocks is when the market looks like a disaster. It is then that the risk is lowest and the potential rewards are highest.

대부분의 주식을 사기에 가장 좋은 시기는 시장이 재앙처럼 보일 때다. 그 때 위험이 가장 낮고 잠재적 보상이 가장 높다.

 

2.The best time to buy most stocks is when the market looks like a disaster. It is then that the risk is lowest and the potential rewards are highest.

대부분의 주식을 사기에 가장 좋은 시기는 시장이 재앙처럼 보일 때다. 그 때 위험이 가장 낮고 잠재적 보상이 가장 높다.

For many years certain stocks have been considered to be cyclical; that is, the business of those companies rose and fell with the business cycle. It was also assumed that some industries and certain companies were noncyclical— little affected by the changes in business conditions. The attitude developed among investors that cyclical industries were to be avoided and that others, such as established growth companies, were to be favored. To a certain extent this artificial division of companies into cyclical and noncyclical has been deceptive because although the earnings of some companies might be little affected by the business cycle the price of the stock is often as cyclical as that of companies strongly affected by the business cycle. Virtually all stocks are price-cyclical. Stocks that are not earnings-cyclical often have higher price/earnings ratios, and thus are susceptible to reactions when the primary trend of the market begins to decline. This can occur even during a period of increasing earnings.

수년 동안 특정 주식은 순환적인 것으로 간주되어 왔습니다. 즉, 해당 회사의 사업은 비즈니스주기와 함께 상승하고 하락했습니다. 또한 일부 산업과 특정 기업은 비주기적이라고 가정했는데, 이는 사업 조건의 변화에 거의 영향을 받지 않았다. 투자자들 사이에서는 순환산업을 피하고 기성성장기업 등 다른 업종을 선호한다는 태도가 전개됐다. 어느 정도까지는 이러한 기업을 순환적이고 비순환적인 기업으로 분할하는 것은 기만적이었다. 왜냐하면 일부 기업의 수익은 사업 주기에 거의 영향을 받지 않을 수도 있지만, 주식의 가격은 종종 사업 주기에 의해 강하게 영향을 받는 기업의 가격만큼 순환적이기 때문이다. 사실상 모든 주식은 가격 순환이다. 수익주기가 아닌 주식은 종종 높은 가격 / 이익 비율을 가지므로 시장의 주요 추세가 감소하기 시작하면 반응에 취약합니다.이것은 수익이 증가하는 기간에도 일어날 수 있다.

 

3. A Superb(일품) Company Does Not Necessarily Have a Superb Stock. There are no sure things in the market

슈퍼브 회사는 반드시 슈퍼브 주식을 가지고 있지 않다. 시장에 확실한 것은 없다.

There has been a considerable amount of investment advice over the years that has advocated buying quality. “Stick to the blue chips,” it said, “and you won’t be hurt.” But the record reveals that an investor can be hurt severely if he buys a blue chip at the wrong time. And even if he does not lose financially, he usually has gained very little, particularly considering the risks he has taken.

수년 동안 구매 품질을 옹호해 온 상당한 양의 투자 조언이 있었다. “블루칩을 계속하면 다치지 않을 거야.” 하지만 기록에 따르면 투자자가 잘못된 시간에 블루칩을 사면 심각한 피해를 입을 수 있다. 그리고 재정적으로 지지 않더라도, 그는 보통 거의 얻지 못했는데, 특히 그가 취한 위험을 고려하면 더욱 그렇다

4. The catalysts

촉매

Superperformance is triggered by many actions, such as a surprise announcement of a large increase in a company’s earnings, or the decision of one company to merge with another. But most often it is found in stocks that are rebounding from oversold conditions, such as those characteristic of bear market bottoms

최우량실적은 기업의 수익이 크게 증가한다는 뜻밖의 발표나 한 회사가 다른 회사와 합병하기로 결정한 것과 같은 많은 행동들에 의해 촉발된다. 그러나 대부분 약세장 바닥의 특성과 같은 과잉매도 조건에서 반등하고 있는 주식에서 발견된다.

When stocks begin to regain strength after touching bear market lows, which are the stocks that bounce back fastest and strongest? Contrary to a belief held by some investment advisers, it is not the big, quality stocks…Rapidly increasing earnings were characteristic of most of the stocks on the list. Another notable feature is their size; these companies were all quite small – in terms of float and market cap

약세장 최저치에 도달한 후 강세를 되찾기 시작할 때, 가장 빠르게 반등하는 종목과 가장 강한 종목은? 일부 투자 자문가들이 가지고 있는 믿음과는 달리, 그것은 크고 질 좋은 주식들이 아니다.급등한 수익은 상장 종목 대부분이 특징이었다. 또 다른 주목할 만한 특징은 규모입니다. 이들 기업은 모두 유동성 및 시가총액 면에서 상당히 작았습니다.

5. Sooner or later, all trends come to an end

조만간 모든 트렌드는 끝이 난다

Superperformance price action is not consistent year after year in even the greatest growth stocks. The stock prices usually move rapidly upward for a period of months or several years. This is the superperformance stage. The superperformance stage might be followed by a price reaction, or a sideways price movement. After a period of consolidation, which sometimes lasts for years, there might be another superperformance stage.

최고의 성장주에서도 초우량 실적 가격 움직임은 매년 일관적이지 않습니다. 주가는 일반적으로 몇 달 또는 몇 년 동안 빠르게 상승합니다. 초우량 실적 단계입니다  초우량실적 단계는 가격 반응 또는 횡보 가격 움직임에 의하여 수행(미행)되어 질 수 있습니다. 때로는 몇 년 동안 지속되는 통합 기간 후에 또 다른 초능력 단계가 있을 수 있습니다.

Most stocks experience declining prices after a superperformance phase has run its course. In many cases the price decline is severe. There appear to be three principal causes for the price reactions. These include weakness in the stock market in general, including the beginnings of a new bear market; the overpricing of stocks, which often results in profit-taking and a lack of new buying interest; and a drop in a stock’s earnings. However, in most of the latter instances the stock’s price began its slide before the reported earnings began to decline. In many cases, though, the earnings decline was undoubtedly anticipated by some investors.

초실적 국면 후 가격이 하락하는 대부분의 주식경험은 계속 그 길을 달려갔다 많은 경우 가격하락은 심하다 여기에는 가격반응에 대한 세가지 주요원인이 있을 것 같다 이들은 새로운 하락세 시장의 시작을 포함하여 일반적인 주식시장에서 약함을 포함한다 약한 점은 이익취득과 구매 관심의 부족을 초래하는 과도하게  주식가격을 책정하는 것과 주식이익의 하락이다  그러나 후반부의 예에서 대부분 보고된 이익이 하락하기 시작 전에 옆으로 횡보하기 시작했다 많은 경우에서 이익의 하락이 의심없이 약간의 투자자들에 의하여 예기되지는 하였지만 말입니다 

 

6. Look for small float, small cap companies with innovative products

Opportunities for big gains in the stock market are more likely to occur in relatively small companies than in companies with many millions of shares outstanding. Look for a small company introducing a unique product that is likely to become widely used. This is the combination that has time after time resulted in dynamic growth and volatile superperformance stock-price action.

7. Change means opportunity, and change is one thing that is certain.

The introduction or planned introduction of a unique new product can have a dynamic effect on the price of the stock of a relatively small company. Many investors tend to be attracted to new, developing situations and to ignore old, established, stable situations. A large, mature company is likely to remain relatively stable in price, thus offering comparatively little opportunity for large capital gains.

8. Growth, Growth, Growth

Any investor looking for large capital gains in the stock market should look for companies that are in the growth stage of the life cycle. These are usually companies that have been established for a few years; they have been in existence long enough so that their chances of survival are pretty good. But they are usually fairly small companies, with comparatively few shares of common stock issued, usually under ten million. The percentage growth of sales and earnings, and also the stock’s price, can usually be much more rapid for a five-million-share company than for a hundred-and fifty- million-share company, particularly if an appealing new product is being manufactured and large companies do not have the advantage of patents and established distribution channels for that particular product.

9. A good story can only get you so far

In choosing growth-stage companies, it is necessary to be very selective. Stock prices can be pushed up quickly because of a good promotion or story that usually describes impressive plans for future development. But in the long run stock prices are based on earning power. So the story has to begin to come true or else disillusioned investors will begin to sell their stock and drive down the price. As long as the story is coming true through satisfactorily increasing earnings, most investors will continue to hold their stock. Separating fact from fancy is the big job of investors who are searching for growth, and for superperformance price action based on growth.

10. Look for sudden earnings explosion. It will take awhile for the market to discount it properly

Earnings explosions are often of great significance because they call attention to newly developed earning power. Recently I ran across a small clipping I had torn from a local newspaper in the summer of 1963. The clipping reads: “Xerox Corporation in 6 months ended June 30 earned $10,327,031 or $2.66 a share vs. $5,658,165 or $1.74 in 1962 period.” That is an example of an earnings explosion: a large sudden increase in the profitability of a company. The earnings explosion occurred just after Xerox introduced its new copiers, and the earnings increase was directly traceable to revenues from the new copiers.

11. Rumors are also catalysts

One of the strongest forces propelling the price increase was the rumor, later confirmed, of a large increase in earnings. In this case the earnings for the 1963 fiscal year were more than quadruple the earnings for fiscal 1962. Of even greater importance than reported earnings, however, was the expectation in the minds of speculators that future earnings would be even larger. Syntex at that time was one of two companies pioneering the development of birth control pills. Investors could anticipate a very large market and increased earnings for the future. Thus, the expectation of large future earnings caused a buyers’ stampede for the stock.

12. Market is forward looking. Expectations Matter

Higher Earnings Are Usually Anticipated But how about earnings that are uncomplicated by manipulation, that are higher simply because the company had a much more profitable year? Let’s suppose the earnings are reported and they have doubled. The stock should go up in price, right? No, not necessarily. Not if a dozen mutual fund managers had expected earnings to triple, not merely double. They would be disappointed and might decide to sell. Other investors who had predicted the earnings increase might decide to sell on the news. Reports of large increases in earnings have their biggest impact when they come as a surprise. When that happens, almost everyone has an opportunity to participate in the resulting rise. Being able to interpret the effect that an earnings report will have on the market is very important. And even more significant is the light it might cast on the company’s prospects for continued future profits. Earning power, real and potential, is the most important feature to look for.

13. Multiples Expansion

Most superperformance price moves are caused not by developments such as increased earnings, but rather by overreaction of investors to those developments. The overreaction can be measured quite accurately by comparing the increase in the price to the increase in earnings—that is, by the expansion in the P/E ratio. Some of the biggest stock market profits are made by going along with the crowd while it pushes the price of a stock higher and higher in nonstop optimism.

14. Momentum and the fear of missing out

Sometimes the quickest profits are obtained during these periods of optimism in very active stocks that everyone seems to be aware of and many people are trading. But with this type of stock it is important to be in the action early. Cautious investors often delay their purchase until they are absolutely certain that they are right in buying a stock. It is often at this point that the stock, which has been going up in price for some time, is due for a reaction. Do not be too late in joining the action; it is also important not to overstay a position that has turned stale or has started to decline. Be alert for turns or changes in investor psychology. For your own protection it is discreet to use stop-loss orders if the price of a stock has risen rapidly.

15. Market is a giant mood ring

Just as there are times to go along with the bullish enthusiasm of the crowd, there are also times to leave, to stand aside. The time to sell is when the bullish drive is beginning to lose its momentum, to turn stale. Price superperformance phases do not last indefinitely. Most of them last only a couple of years, then the stock reacts into a downtrend or sideways price action. The prevailing mood of investors changes, often slowly, from bullish optimism, to doubt and apprehension, to bearish pessimism, and finally to panic as the decline accelerates. As with unbounded optimism, never underestimate the power of negative thinking.

Fear and pessimism become so overwhelming at times that even the strongest, most bullish-looking stocks are caught up in the selling deluge. The speculative mood of investors appears to move in waves of pessimism and optimism that are based on actual economic or political conditions but which greatly amplify those conditions.

16. The P/E ratio reflects the enthusiastic optimism or gloomy pessimism of investors.

More important than your mood is your sensitivity to whether the crowd is optimistic or pessimistic. The rewards are few if you are optimistic while the crowd is selling in waves of pessimism. The crowd may be wrong, but you cannot fight the crowd by yourself. If you try to buck the stampede, you will be trampled. If you buy a stock too early during a period of highly emotional selling, you will soon discover that you have a loss, and perhaps a large one. The time to be contrary, to sell or to pick up bargains, is after an emotional binge of mass optimism or pessimism has lost momentum and a reversal is imminent. Soon others will realize that the future is not as bleak or as rosy as it had appeared.

P/E ratios expand to higher multiples when the future looks very good; they contract to lower multiples when the future looks bleak or uncertain. P/E’s are sensitive measurements of mass psychology. The evidence indicates, therefore, that investor psychology is just the opposite of what it should be for successful investment, since P/E ratios have been high at the end of superperformance moves. But it is after a stock price has moved upward for two or three years that caution and a low P/E ratio are called for, since it is at this time that a price reaction is most likely to occur. And even the very best stocks have price reactions.

17. Value is subjective. Price is what the market is willing to pay you now.

A piece of property is worth as much as someone is willing to pay you for it. So it is with common stock. Find stocks for which you think someone will be willing to pay you a higher price at some time in the future. This approach is applicable to any type of investment—in a diamond, a painting, a bushel of corn or wheat, a house, a piece of land, or a share of common stock. The market price of the item reflects the psychological factors—the extremes of optimism and pessimism—that can cause the value of an item to vary widely, sometimes in just a few hours or days. When the market value of an item is plummeting, it reveals that the fear many people have of lower values for their property is stronger than their hopes for higher prices.

18. There often appears to be little relationship between the price of a stock and its inherent value.

Stocks that are overpriced relative to their inherent value often have severe price declines sooner or later, but many of them remain in an overpriced state for years before the price reaction occurs. In a similar way, some stocks of companies in unglamourous industries are frequently depressed in price, as compared with stocks in general. Throughout the late 1960s and early 1970s when most stock prices and the market averages were soaring, the steel industry stocks remained depressed. The mere fact that a stock is depressed in price relative to its inherent value does not necessarily mean that an adjustment will be made and that the stock’s price will rise. The stock can remain depressed for many, many years. Finding “value” is not enough, by itself, to assure that a specific investment is good. The book values of stocks are relatively stable in comparison with their large fluctuations in market price.

19. The Art of taking profits

Timing the sale is more difficult than timing the purchase because stocks reach their bear market lows simultaneously, but their bull market highs are attained independently. Following the stock averages and selling when the primary trend turns down is often unsatisfactory, since numerous stocks reach their peaks prior to the peaks in the averages. The price and volume trend for each stock must be studied independently and action taken accordingly.

20. Short Selling

Profits in the stock market can usually be made faster by selling stocks short than by buying them. The reason is that price declines are usually much steeper than price rises, which occur more gradually, over a longer period of time, and are usually accompanied by a healthy amount of pessimism that gradually lessens the longer the price rise continues. Price declines, on the other hand, contain an element of panic that increases as stock prices plunge lower.

By Ivanhoff Capital