The Neatest Little Guide to Stock Market Investing #1 Tip

As part of my stock market investing strategy, I try and keep up to date on books available. One book I saw at the bookstore was called The Neatest Little Guide to Stock Market Investing by Jason Kelly. To be honest with you, I saw this book many, many times and always passed on it. But if you spend as much time in the bookstore as I do, you will discover two things. The first is that most of them are far too general in scope and are basically worthless and two, you'll eventually pick up books you see because you have looked at everything else. The latter was what happened to me. Having finally picked it up, I decide that the book was worth purchasing and read it right away.

One of the things that kept me away from the Neatest Little Guide to Stock Market Investing was mainly it's hokey title. It's been my experience that books that have stupid titles also aren't very deep. Not so with this book on investing. Now, I am speaking to those that are new to investing in the stock market. If you are a hardened veteran investor, you probably already know what you are going to find in it. It's no where near the quality of William O'Neil's How To Make Money in Stocks, but it's a good primer to get you ready for it.

He spends some time in the book going over the benefits of investing and specific investing strategies and the gurus behind them. He then lays out a specific step by step method of picking stocks. I found this all very useful but didn't apply his recommendations to my overall strategy - which is CANSLIM. CANSLIM is also discussed in the book. I think that the one point that he came across to me when I read the book, is that whatever you do, pick someone who has been successful in the market and model what they have done.

That being said, the #1 tip I learned from his book was in his discussion on using a watch list to keep a list of stocks that meet certain criteria. For every stock that you come across, he recommends comparing it to a list of 20 high quality stocks on your list. If it is better, then remove the worst stock off your list and add the newcomer on.

I found this information valuable because there is very little information published on how to manage a stock market watch list. I think this is one of the most important tools you can use. I did think that he used too many criteria and substituted the top fundamentals recommended by O'Neil in place of his. This made for a much for familiar list of fundamentals to review that more closely resembled what I read in the IBD.

To me the hard part is still on deciding exactly which are the most important fundamentals because all stocks show different strengths. What is the deciding factor in whether a stock is deemed better than another. I emailed him this basic question. He suggest that you do just that but never received an answer back. In the absence of any other direction I decided to take the following approach.

Let's say that you want to keep a watch list. To keep it simple, let's say that you keep it to four CANSLIM fundamentals you are looking to focus on.

1. Earnings per share has to be greater than 25%
2. Earnings per share growth past three years greater than 25%
3. Sales growth in the most recent quarter greater than 25%
4. Return on equity greater than 17%

The first thing I would do is rank the criteria from most important to least important. I've already done that above. Earnings are my most important screen.

The easy part is if a stock you find doesn't meet your thresholds. But what do you do with when two stocks meet your threshold and let's say that one stock has higher earnings and the higher sales? What I would do is rank them by the most important fundamental (in this case earnings).

Here's an example: (both stocks meet all of your minimum criteria)

• Stock A has earnings of 125% and sales of 45%
• Stock B has earnings 50% and sales of 200%

I would keep stock A because it's my most important indicator even though sales are higher. If the sales turn into earnings, then the stock will come back later for a future review on the many IBD screens available in the paper.

In his book, he also suggests keeping a watch list of 20 stocks. I thought that this was too many. I would stick to 10. All in all though, I was happy with the Neatest Little Guide to Stock Market Investing. In addition to the paperback, I also bought the electronic version for my e-reader.