Martin Fridson


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Martin Fridson is Managing Director at Merrill Lynch, where he edits Extra Credit: The Journal of High Yield Bond Research . He was formerly principal and manager of Credit Research at Morgan Stanley.

Books

Investment Illusions , John Wiley, 1993

It Was a Very Good Year , John Wiley, 1998

How to Be a Billionaire , John Wiley, 1999

A streetwise approach to stock selection

  1. Matching the averages is not a bad outcome.

    Over the long run, an index of small-cap stocks has far outperformed the best active mutual fund managers. In past decades, you could not buy a fund designed to replicate that index, but today you can.

  2. Investors will not wake up one day and realize that the stock you're considering is too cheap.

    Stock price surges require some sort of stimulus, such as an unanticipated pickup in demand or a takeover bid.

  3. The stocks of highly admired companies are not bargains.

    Investment counselors figure they cannot get into trouble by investing your money in a company that has gone from success to success. The problem is that all of the other investment counselors reason the same way, causing the stock to be overpriced.

  4. The best oil exploration deals never get sold outside of Texas.

    Organizers of limited partnerships can ordinarily raise all the money they need among their close friends , assuming they have genuinely good prospects. If you are a stranger with a modest sum to invest, the fact that you are being offered the 'opportunity'to participate is a reason to be skeptical.

  5. Beware the stockbroker's blue light special.

    Be careful if your broker calls to pitch you on a new investment product. The brokerage house may have created a special sales incentive and urged the salesforce to call every customer. The product is not necessarily something that fulfills your objectives.

  6. Meeting a quarterly earnings target does not guarantee that a company is on a good track.

    Over short periods, plenty of gimmicks are available to management to pump up the reported income figures. Overstating earnings today ensures a shortfall in the future.

  7. When a red flag goes up in the area of financial reporting, assume the worst.

    The company's investor relations officer is always ready with a plausible explanation for an alarming surge in receivables, revenues that are completely out of line with the industry trend, or a late filing of a quarterly statement. These excuses are notoriously unreliable.

  8. Put a value of zero on a company's claim to be recession -proof.

    Investment bankers coach the chief executive officers of cyclical companies to reassure investors that their particular market niche is impervious to economic downturns. At some point after the deal closes , as a rule, the economy declines and the earnings of all of the supposedly rock-steady companies go down in unison .

  9. Consider IPOs from the corporate finance point of view.

    Do not assume that some bright entrepreneur came up with a good business idea and then looked for a way to finance it. Investment bankers may have created the company to exploit a hot stock market or a flaw in the accounting system that enabled them to fabricate huge earnings.

  10. There is always a first time.

    Do not buy a stock on the premise that if some economic indicator has declined for three years in a row, it must be poised for a rebound, simply because it has never gone down four years in succession.



Global-Investor Book of Investing Rules(c) Invaluable Advice from 150 Master Investors
The Global-Investor Book of Investing Rules: Invaluable Advice from 150 Master Investors
ISBN: 0130094013
EAN: 2147483647
Year: 2005
Pages: 164

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