James O’Shaughnessy’s Tiny Titans Stand Tall in 2018

Mighty Minis: Tiny Titans Stand Tall in 2018 Our annual recap of the AAII Stock Ideas almost had a repeat of last year’s “worst to first” turnaround. This year’s top-performing AAII screening strategy ranked near the bottom in 2017. We also discuss some important and useful changes we have made to the Stock Ideas section…

 

The Major Approaches to the Question of Valuation

Screening a universe of common stocks down to a manageable number for further analysis leads the investor to the question of valuation: Given the market price of the common stock, is the stock correctly valued? If, in your opinion, the answer is no and you believe the stock is either overvalued or undervalued, then a…

 

Analyzing Value: The Internal Growth Rate

Earnings and dividend growth rate assumptions are a primary factor in almost all fundamental models of common stock valuation. The greater the anticipated future growth in firm earnings, the greater the stock valuation will be, assuming risk remains unchanged. But estimating earnings growth potential is difficult. Many subjective factors are considered, including the firm’s management,…

 

Using Cash and Short-Term Bonds to Avoid Taking Losses

This week’s AAII Weekly Digest highlights these “must-read” AAII articles:   Analyzing a Stock by Its Dividend and Shareholder Yield One theory of valuation is that a stock is worth the cash distributable to shareholders. An advantage to methodologies based on this concept is that cash distributions are not influenced by accounting adjustments. Cash is…

 

A Checklist Can Make You a Better Investor

In discussing how his company responded to last week’s engine failure on flight 1380, Southwest Airlines CEO Gary Kelly was quoted by The Wall Street Journal as saying, “Everybody has a checklist.” Checklists have been shown to work across a variety of fields, including aviation, health care, construction and, yes, investing. Value investors Guy Spier…

 

Quality Can Help Put the Odds in Your Favor

Let’s start this week’s commentary with a hypothetical scenario: A person you trust says they have two stock picks for you. Both stocks are expected to rise in price. The charts for each stock are showing similar formations and the recent news seems equally positive. You only have enough available cash to buy one of…

 

Why Technical Analysis Matters

Technical analysis is a bit of a misnomer since it is really not that technical. A better name for the use of charts to make investment decisions might be risk/reward analysis or even market psychology. Sure, there are some complex mathematical concepts involved with some of its more esoteric indicators. But at its core, technical…

 

David Dreman’s Contrarian Approach to Stock Selection

David Dreman is a famous investor whose name is linked with the definition of “contrarian.” Contrarians think independently, as opposed to going along with the crowd. Dreman feels that irrational behavior in the markets tends to push a stock’s value away from its true value. The savvy contrarian investor executes a value investing approach with…

 

9 Rules for Better Stock Investing

This week’s AAII Weekly Digest highlights these “must-read” AAII articles: Why Value Beats Growth: A Brief Explanation The various characteristics of stocks that generate higher returns than what the capital asset pricing model (CAPM) would predict are known as “stock market anomalies.” Two of the most famous anomalies are size and value. This article sets out…