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    Purple Chips: Winning in the Stock Market with the Very Best of the Blue Chip Stocks
    Purple Chips: Winning in the Stock Market with the Very Best of the Blue Chip Stocks
    Purple Chips: Winning in the Stock Market with the Very Best of the Blue Chip Stocks
    Ebook195 pages1 hour

    Purple Chips: Winning in the Stock Market with the Very Best of the Blue Chip Stocks

    By John Schwinghamer

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    About this ebook

    How to make money investing in high-quality, low-risk stocks

    Purple Chips presents a unique stock-picking method based on identifying great companies based on simple visual examinations of financial health, applying three basic criteria to distinguish high-performing purple chip stocks from mere blue chip investments. The book also delves into the psychology of investing, arguing that most investors are better suited to winning small gains often and losing occasionally, rather than taking small losses often and winning big from time to time. In seven succinct chapters that feature plenty of helpful examples, graphs, and charts, author John Schwinghamer presents a simple and effective way to win with stocks. For more information, please visit www.PurpleChips.com.

    LanguageEnglish
    PublisherWiley
    Release dateMay 14, 2012
    ISBN9781118300138
    Purple Chips: Winning in the Stock Market with the Very Best of the Blue Chip Stocks

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      Book preview

      Purple Chips - John Schwinghamer

      This book is dedicated to my wife, Jane, who has always been my best supporter and who still laughs at my jokes.

      Acknowledgments

      I am grateful to the following people for their assistance in developing Purple Chips:

      David Schwinghamer for his early guidance and editing skills; Raymond Kenworthy for all his research and analysis; Marilyn Biderman for sharing her vast knowledge of the publishing business; Mark Benthin for adding value; and Andre Bourret, Joseph Mendel and David Arthurs, for off ering me their wisdom and support.

      Introduction

      With so many books on investing, you would be right to ask what could possibly make this one any better than what is already out there.

      The answer is simple. I believe that if you take the time to read through the arguments that I put forward in this book, you will learn a simpler way to identify top-quality investments at good prices. If you follow the unique yet sensible approach that I propose in this book, your level of confidence will rise as you see yourself invest successfully, and with less risk, more often. This book will show you how to identify great companies based on a simple visual examination of their financial health. You will learn to invest with a well-defined plan that includes when to buy, when to sell and when to take a loss.

      I wrote this book because through all my years in the financial industry, I have yet to come across a simple and effective way to invest. Most of the successful approaches I have seen involve extensive ratio analyses and screening procedures that are well beyond the practical ability and patience of most investors, and of many an investment advisor as well.

      Many investors and professional advisors rely on analysts' reports rather than doing extensive analyses themselves. In my opinion, following analysts' reports is one of the more reliable ways to lose money or realize mediocre returns. Nowadays, due to the easy availability of information, the astute investor has access to tools and information that can easily replicate what the average professional advisor has to offer.

      The methodology that I present starts with a strong foundation. It forces you to consider only the highest-quality companies and relies on long-term track records. The strength of this approach lies in its simplicity and effectiveness in identifying investment opportunities without having to do extensive financial analysis. The beauty of this approach is that it will identify the same investment opportunities that could otherwise be found only through extensive analysis.

      The common wisdom seems to be that investing in the stock market is mastered only by going through the school of hard knocks, taking some finance courses and then investing, crossing your fingers and hoping that you don't get hurt too badly in the process. Failing that, you hope to be lucky enough to know a savvy investor who can help you navigate the ever-changing, turbulent seas of the stock market.

      The alternative that you will learn about in this book is not earth-shattering; most astute investors would arrive at the same results. However, the approach that I take is a visual one: that is, one based on the consistent presentation—in graph form—of the same variables, which demonstrate the potential in any given stock. Once understood, the application of this analysis can save considerable time and effort and yield good results. It is also quite unlike the classic buy and hold strategy. It is simply a common sense approach that focuses on identifying the highest-quality companies at the right price. In short, this book will show you how to:

      1. identify great companies;

      2. buy their stocks when they are priced low;

      3. sell them when they are priced high; and

      4. repeat Steps 2 and 3 again and again.

      Let's now take a quick look at my background and how I developed this approach.

      My Background

      I am a portfolio manager at a major bank in Montreal, Canada. I grew up in a middle-class family. My father was an engineer with more interest in the outdoors than in money, and my mother was a registered nurse who focused on savings. I was one of six children, and an average student in high school.

      In my early adolescence I learned that I liked having money and that I liked making money. I started learning about investing when I bought my first motorcycle at the age of twelve. It was a Keystone 50cc two-stroke minibike, which was worth about $150. I rode it around for a year and then sold it for a profit. I traded up for a larger, more powerful off-road motorcycle, and then, with the passing seasons, another and another. At sixteen I moved on to cars. By the time I was twenty, I had bought and sold more than a dozen vehicles, and usually made a profit.

      Those years taught me a fundamental lesson about making money: If you buy well, you can always sell at a profit. This lesson is what led to me becoming a value investor and developing a simple model that recognizes value.

      My exposure to the stock market started when I was about eighteen and in college. In my student years, every summer I used to fly out to western Canada and work in the construction, oil and mining industries. After several summers, I had saved up enough money to start investing in stocks. I dabbled in the markets but soon realized that I could use some professional advice. I decided to find a savvy investment advisor who could teach me the ins and outs of the market.

      Having no one to guide me on how to find an advisor, I presented myself at the reception desk of one of the major investment firms and asked for a meeting with a good broker. The receptionist politely invited me to have a seat and made a call. I spent a few minutes waiting anxiously in the reception area before a broker in his fifties emerged and greeted me. He looked a little uncomfortable, perhaps expecting someone older than my twenty-two years. Nonetheless, he seemed like a gentleman and I was excited to meet him. I eagerly answered his question about how much money I was looking to invest: $25,000—every penny I had. That amount sounded like a lot to me, but it did not impress him. He gently informed me that I didn't have enough capital to meet his minimum investment threshold. I was disappointed, but not for long, because he said he had a solution and then disappeared for a minute. When he came back, he was accompanied by Harry, a broker who not only looked slick to my eye, but as his business card told me, was a vice president. Wow, I thought. I can't go wrong with his advice.

      I went so wrong. I came to learn that Harry's impressive title was not representative of his market prowess. It turned out that he was used to working with neophyte investors and was well aware that he could turn most of their investment capital into his own commissions. In other words, he would be pleased to take what I had and make it his. He sized me up as a rookie who knew little about investing and had the unrealistic, yet surprisingly pervasive, belief that doubling your money in a short time is possible. He saw me coming and changed my life.

      This unscrupulous broker decided that I should place all of my capital in some gold mine warrants that would expire in about six weeks. He assured me that this was a surefire way to make a fast profit. Naively, I placed my trust and capital with him—the whole $25,000—which had taken me several summers to pull together and was every penny I had.

      A few weeks later, I was stunned when the bad news came. I don't have the words to describe everything I felt. The warrants had gone to zero. I had lost everything. I was crushed, humiliated and more than a little upset.

      Harry had taken me for a ride and, when he watched the warrants go to zero in a few short weeks, simply said to me, Too bad, kid. It didn't work out. (While I was shattered at the time, it appears that what goes around comes around. Found guilty of having committed a number of frauds, Harry was barred from the securities industry in 2006.)

      This experience traumatized me. It led to countless hours of thinking about what I could have done with all the money that I'd lost so easily. It gave me a burning desire to know why I had lost all the capital I had worked so hard to get. I was determined never to repeat that experience again.

      In 1984, I graduated from university and was lucky enough to be hired in the Montreal Exchange's first-ever Apprentice Trader Program. The Exchange selected forty-five candidates to

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