As a do-it-yourself investor, I love to read investing books. However, there are only a few books that have really had great educational value; the rest were merely entertainment.
Here are the books which have helped me the most:
- One Up on Wall Street, by Peter Lynch
- The Intelligent Investor, by Benjamin Graham
- Poor Charlie's Almanack, by Charles Munger
- Common Stocks and Uncommon Profits, by Phil Fisher
- What Works on Wall Street, by James O'Shaughnessy
- See below.
Thomas Phelps offers some good advice as to what to look for when trying to find a 100-to-1 investment:
- Inventions that enable us to do things we have always wanted to do but could never do before.
- New methods or new equipment that helps people do commonplace things easier, faster or at less cost than ever before.
- Processes or equipment to improve or maintain the quality of a service while reducing or eliminating the labor required.
- New and cheaper sources of energy.
- New methods of doing essential jobs with less or no ecological damage.
- Improved methods or equipment for recycling the materials used by civilized man instead of making mountains of waste and oceans of sewage.
- New methods for delivering the morning newspaper without carriers or waste.
- New methods or equipment for transporting people and goods on land without wheels.
- J.C. Penney Co.
- Deere & Co.
- Abbott Laboratories
- Dr. Pepper
- Greyhound Corp.
- Philip Morris
- Merck & Co.
- Goodyear Tire & Rubber
- International Business Machines
- Johnson & Johnson
Let's say you decided to invest using Phelps' method using $10,000 (plus any additional money for fees). Furthermore, say you decide to devote a year to trying to uncover 25 stocks which you thought fit the bill as 100-to-1 type companies. After this, you divide your money equally into the 25, buying $400 of each company, and hold them for 20 years. If you only identified 3 out of 25 stocks that went 100-to-1, and say the rest went to zero, even factoring in that year you were looking for the stock, you would have a compound annual growth rate of 12.56%, and $120,000.
Here is the CAGR for identifying 1 out of 25 to 10 out of 25:
This method, just like any other, is not fool-proof. That said, it really requires no maintenance and beats the market quite well just by identifying two of these 100-to-1 stocks.
And with that, I leave you with a parable Phelps shares with us in the beginning of his book:
"Ask and It Shall Be Given to You"
Five poor Arabs slept on the sand. A bright light woke them. Out of it came an angel.
"Each of you can have one wish," the angel said.
"Praise be to Allah," exulted the first Arab to catch his breath. "Give me a donkey."
Instantly a donkey stood at his side.
"Fool," thought the second Arab. "He should have asked for more."
"Give me 10 donkeys," the second Arab begged.
No sooner said than done. He had ten donkeys.
The third Arab had heard and seen how the first two had fared.
"To Allah all things are possible," he said. "Give me a caravan with a hundred camels, a hundred donkeys, tents, rugs, food, wine, and servants."
They came so fast that the third Arab was ashamed to be seen in his rags before such an entourage. But his shame did not last long. Deftly his servants dressed him in robes befitting his new status.
The fourth Arab was more than ready when his turn came.
"Make me a king," he commanded.
So quickly did the crown appear on his head that he bruised his knuckles from scratching where an instant before there had been nothing but an itch. The palace gardens stretched out before him almost as far as the eye could see, and the palace turrets reached so high their pennants were lost in the desert haze.
Having seen his companions in misery ask too little, the fifth Arab resolved to make no such mistake.
"Make me Allah!" he ordered.
In a flash he found himself in sand, covered with leprous sores.