Saturday, 7 January 2012

Speculative-Growth Stocks - Conclusion: Numbers Matter

Some investors like to have a gut feeling about the business they are buying.

In the speculative-growth market, unfortunately, that's often difficult.  

Many of these companies are bringing new concepts to market, and in the case of Internet companies, they're doing it in a new and evolving medium.

Experience can be a poor judge of their viability.

Five years ago in 1994, it would have been hard to believe that an Internet company (Internet?  What's that?) would have a market capitalization of more than $100 billion by the end of 1999.

And that may be a good lesson for investing in the speculative-growth market:  Trust the numbers, not your gut.

Sure, Yahoo is a risk.  The Internet is still evolving, and could look very different a few years from now.

But a disciplined analysis of its financial statements indicates that Yahoo is making increasingly efficient use of its assets, generating consistent sales growth, increasing net margins, and delivering cash from operations.

That's what we want from a speculative-growth stock.


Comment:  The Internet bubble burst in 2000.  To make profit in your investments, valuations and earnings were as important then as now.


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