Discovering Tomorrow’s Winning Stocks – Today!

Most of the income for many of the top producers at the nation’s leading brokerage firms does not come from commissions generated by specific buy and sell recommendations for stocks. Instead, the income for these leading producers comes from fees associated with wrap accounts â€" a service that screens and selects investment management firms deemed to be appropriate for their high net worth clients.These brokers â€" or financial planners â€" are not alone in eschewing the art of stock-selection, or actively managing money. Like many other investors today, they have opted for passively managing money â€" handing over the stock selection process to professional investors. Consider the following:"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals." Warren Buffett’s 1997 Investment Letter to ShareholdersOther advocates of index funds include investment luminaries such as Peter Lynch, Charles Schwab, James Cramer and â€" of course, the man who created the index fund concept in the mid-‘80s â€" John Bogle. Interestingly, Charles Schwab has said that roughly 75 return for the year! If an investor had bought 100 shares of each of those stocks at the beginning of 2007 and sold those stocks at the end of 2007, his/her investment would have appreciated more than 150.You might say, “That’s historical data. I can’t profit from historical data. How can I discover those stocks before they significantly appreciate in market value?”Once again the answer is both simple and compelling. Some investors â€" individual or institutional â€" necessarily have to be early discoverers of those stocks. Our basic premise is that when individual or institutional investors discover a stock with convincing future growth potential they aggressively buy that stock. In the parlance of Wall Street, they make Big Bets.We use two systematic screens to discover those Big Bets â€" Unusual Volume and Institutional Investments. Any investor â€" individual or institutional â€" can replicate these screens. The Unusual Volume screen is constructed from data provided by The Wall Street Journal Online. The Institutional Investments screen is constructed from data provided by the Securities and Exchange Commission. Aside from the annual subscription cost to The Wall Street Journal, all of that information is free and â€" most important â€" is simultaneously available to everyone.That makes it sound relatively simple. In fact, there is considerable work and careful analysis that goes into the construction and operation of the screens. We currently track the investments of roughly 40 of the nation’s largest investment management firms and an equal number of the nation’s leading hedge funds. Collectively those firms have more than $8 trillion in assets under management.Are the two screens effective? Of the 50-top performing stocks for 2007, our two screens generated Buy signals for 35 of the 50 stocks. If an investor had bought 100-shares of each of the 35 stocks that generated a Buy signal they would have had the potential to increase their investment by 120+), but we suspect that most investors would be pleased with the results generated by our Buy signals.I might add, parenthetically, that one or more of the institutional investors that we track had a $100 million or better position in thirteen of the fifteen stocks that did not generate a Buy signal during 2007. That fact simply illustrates the possibility that at some time in previous years their purchases might have generated a Buy signal. Aside from that possibility, those huge ownership positions do lend credibility and comfort.To be sure, not all of our Buy signals result in above-average performance. In fact, some result in below-average performance. However, as one becomes immersed in the data over a period of time, one becomes more comfortable in analyzing the data. For example, it becomes apparent from their track record that some institutional investment firms and some hedge funds display more skill in picking stocks than others. Similarly, one learns that the Unusual Volume data becomes more meaningful in the absence of current news.Obviously daily reading of business publications such as The Wall Street Journal helps to generate an intuitive sense relative to the future prospects for a stock that has generated a Buy signal. To illustrate, if a company is involved in solar energy the current energy crisis might stimulate an investor to explore the company’s web site or â€" better yet â€" their most recent10-K filing which is readily available, either as a reference in the “Investors” section of the company’s web site or directly from the company’s files with the SEC.Clearly there are no systematic analyses that will guarantee your participation in every stock that emerges on next year’s best performing stock list. There is no force majeure that causes stock values to increase in value. The fundamental laws of economics are always responsible for increases in market value.To illustrate that point, companies don’t conduct their business in a vacuum. When they embark on a path of rapid growth, that growth becomes evident to initially a small â€" and eventually a larger â€" group of observers, many of whom become investors. As the conviction and enthusiasm builds, investment demand increases and investment supply decrease. The inevitable result is higher market values.At some point in time the demand factor becomes very aggressive â€" and very transparent. Our Unusual Volume metric is often the first metric to generate a Buy signal for an emerging growth stock. When the Institutional Investment metric generates a Buy signal it will provide an element of confidence â€" knowing that some of the largest, most highly-qualified professional investors in the nation have bestowed their imprimatur on a company’s potential for future growth.We don’t always know why individuals or institutions have become aggressive buyers of a particular stock. However, those Buy signals do alert us to the fact that some investors have become convinced that future market values for that stock will climb higher. Usually that provides other investors with sufficient motivation to conduct their own due diligence.We provide guidelines for performing due diligence, as well as for the ultra-important function of monitoring your investment performance.We welcome your visit at spent more than 20-years with several of Wall Street's leading brokerage firms. Upon retiring, I continued my quest for a method to identify winning stocks. In the late '90s I wrote a book - Be Your Own Broker - and recently launched a web site for individual investors and their advisors.http://bigbetstocks.comSource:

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