Investment guru Tobin Smith reveals his secrets for scoring monster returns in today’s volatile stock market by focusing on the emerging sectors that have the best potential for explosive growth — what Smith refers to as ChangeWaves. ChangeWave Investing 2.0 presents a radically improved method for picking the next monster stocks while protecting current profits. Using the ChangeWave principles, the book explains:· how to identify the stocks with the fastest growth potential befo…
Buy ChangeWave Investing 2.0: Picking the Next Monster Stocks While Protecting Your Gains in a Volatile Market at Amazon
I like Tobin Smith on Bulls and Bears, and since I enjoy business books bought a copy of Changewave 2.0. The first 100 pages talk about “Changewave” ideas: cotton gin, auto, radio, tv, computer,web, etc. The idea is to buy the leaders as these trends emerge. Why that took a 100 pages is beyond me. Tobin fills the pages with words like ChangeQuake, FadQuake, Marketquake. (Even a glossary in the back for made up words)
I thought for a minute Miss Marsha had written an investment book. The second half of the book was ok, the most cogent point was that the only way you make money in stocks is when you sell.
My suggestion, is to pick up a copy of the Gorilla Game which I read a few years ago. It is the same concept, but is much more detailed and useful to individual investors. For the technical analysis/ growth investing segment of the book, How to Make Money in Stocks by William Oneil gives a reader far more insight on how to select stocks and protect profits.
To qualify for a changewave company, the company must be $1 billion in size.
Changewave 1st Screen : They must have a growth rate in the top 10 percent companies in the new economy.
Changewave 2nd Screen (Top 10 sectors) : five times S & P 500 growth
Changewave 3rd Screen (Supersectors): Top 10% growth rate in each new economy industrial category.
Changewave 4th Screen (Market): Top 1%
Predicability is essential in changewave. The most predictable winner in a top secular growth space goes to the highest valuation – everytime.
All things being equal, the simplest to understand secular growth and competitive advantage logics wins the growth stock debate.
People buy stocks the same way they buy other products. People buy products they are comfortable with; the product is simple too understand and its indispesible to the consume.
Fundamentalist figure out stock value based on fundamental research and analysis. They predict the stock price will go up. P/E = Price of Share/Retain Earnings. This tells you if the investors are being unrealistic about the price in relationship to earnings growth. However, price is a function of present value and future earnings, It does not consider capital generators, such as, copy rights, intellectual property, and patents. Capital growth companies accounted for 50 percent of all the corporate profits.
When the dust settles in any information technology-based industry, there will be one company with 60 to 70 percent of the market share and the bulk of profits and valuation in the segment. The number two guy will have a 20 percent share.
Technical analysis is employed to decide buy and sell patterns. Technical analysis uses bar charts and indicators to buy and sell.
The momentum investor waits to see what everyone else is doing. If there’s momentum behind a stock, he assumes that the momentum will continue and bets on that fact.
The innovators: Because only 3 to 5 percent of the world are innovators. The early adopters: 10 to 15 percent are early adopters. The early majority: “I need more evidence”
Change wave looks at marketing, first, and considers how marketing will use product superiority as a compeling motivator to buy. Product superiority does not guarantee a consumer buy trend. (Beta verse VHS, DVD verse CD,CD verse memory stick). Customer acceptance is more important than product superiority. The winning product will have the best marketing.
Suppose a company builds a car that rides on air and suppose it comes with special safety features than are 80 percent more effective at saving lives. Does everyone go out and buy the new car? Probably not because safety does sell just increases cost. Now suppose other companies are starting to build a similar vehicle. Its radical departure from terrestial ground transportation creates a changequake. It looks like the old transportation technology is being abandoned. Suppose, the technology is the hydrogen cell transportation; the changequake may not be felt, if it is felt than it qualifies; we are not looking for an incremental change; we are looking for radical change. Wealth opportunities are found from rapid and significant changes.
Entrepreneutrial companies harness their innovations and create new, order of magnitude improved ways of doing things. The law of distribution is controlled by product creation and consumer demand. Consumer demands does change suddenly, it changes when their is a disruption.
“Investing in the right stock in the best space gets all the money.” This is the law of the free market. This is the law of distribution, its beautiful.
Where is the fastest, biggest, and most locked in sustainable growth in the economy today?
Which sectors are biggest beneficiaries of this hugh, predictable, and sustainable growth?
Which companies are best positioned to capture a disportionate percentage of this locked in growth?
The Top 10 Supersectors
1. optical internet infrastructure
2. wireless internet infrastructure
3. b2c
4. b2b
5. data storage
6. eService
7. digital services
8. eProcessing
9. non-pc computing
10 broadband to the home
The Top 10 Supersectors change from time to time. Optics technology investment continues to be appealing because it offers radical differences in change.
The Value Chain: New Economy -> Change Quake -> Killer Value Proposition -> ChangeWave ->SuperSector->SuperSpace->WaveRider companies
SuperSpace Criteria:
1. is the project growing at least eight to ten times faster then the economy in a three to five year period
2. does it hold an enabling control position
3. does it provide a killer value proposition
4. is it projected to become a billion dollar industry
The big idea
1.Buy on upward price movement trend. Buy above the 50-day average.Sell when the 200 day moving average crosses the 50 day average. (shift in momentum)
2.Select companies with 5 to 6 million available shares (float). Take advantage of the float
3.Buy if the stock moves up 20 percent from a temporary downward trend
4.Double up on the stock if has moved up 20 percent in the past three to four weeks.
5.Rising volumes are required to sustain higher prices. Volume increases as mutal funds and hedge funds start buying