Worth's Greatest Stock Picks of All Time: Lessons on Buying the Right Stock at the Right Time - Hardcover

W. Randall Jones

Hardcover

ISBN 10: 0609609319 ISBN 13: 9780609609316

Publisher: Crown Business, 2002

Synopsis

Learn How to Pick the Right Stock at the Right Time

The momentum of the bull market spoiled us all—buying stock, any stock, was an almost surefire way to make a mint. Now, in a time of turbulent markets, stock picking has become a mixture of science and high art. With thousands of stocks to choose from, how can investors determine which ones will be future winners?

We all know there’s a time to buy and a time to sell every stock, but when is the right time? Timing stock buys so that you catch upward momentum is not luck, and Randy Jones shows you how to hone your buying and selling skills by striving to analyze the factors that made winners of the great stocks in the past. Why was AT&T a great stock pick in the 1920s, Polaroid a winner in the ’40s, Xerox in the ’50s, Teledyne in the ’70s, and Intel in the ’90s? The potential of these stocks was in plain sight—for those who knew how to read the signs. And perhaps as important is understanding the signs of decline and knowing when to sell.

Randy Jones analyzes twenty-five of the greatest stocks of all time, providing a framework for evaluating their strengths that can be used for future selections, including:

• Linking great management and bottom-line profits: Who were the faces behind AIG, GE, and IBM that led to profitability, and what was it about these people’s management skills that made their companies so great?
• Pathbreaking products: Polaroid, Xerox, and Amgen show that products that often seem to be overnight sensations were instead developed over many years, giving investors plenty of lead time to discover their potential as great investments.
• The innovative business model: Avon, McDonald’s, and Dell reveal that understanding how a company makes money helps you to understand its strengths and vulnerabilities.
• Investing during bad times: For some companies, such as Coca-Cola, Schlumberger, and Chrysler, nationwide economic downturns can actually be advantageous.

Worth’s Greatest Stock Picks of All Time has invaluable lessons for anyone in the market today.

About this title

About the Author

W. Randall Jones (editor in chief of Worth® magazine) is the founder, chairman, and CEO of Worth Media LLC, the parent company for Worth®, the financial lifestyle publication for wealthy, active investors. Randy is also the voice of the ABC News Radio program A Minute’s Worth, syndicated daily to 4,600 ABC radio affiliates, as well as a frequent commentator on numerous television shows, including The Today Show, CNBC’s Power Lunch and Business Center, CNN’s Business Unusual, and Fox News programs. He resides in Manhattan and Bronxville, New York. Julie M. Fenster has written several books on personal finance and business history.

From the Back Cover

“This book is brilliant. I wish I had thought of it myself.” —Jim Rogers, investor, and author of Investment Biker

“An Asian wise man used to ask the Deity in his prayers to spare him from living in an uninteresting era. But Jones won’t allow it. He makes the reader a copilot on a journey through the 1920s, the 1990s, and points in between, unfolding the sagas of twenty-five fascinating companies that were among the great stock picks of their day. Readily accessible and highly recommended.” —Dr. Michael J. Boskin, professor of economics and senior fellow, Hoover Institute, Stanford University, and former chairman of the Council of Economic Advisers

“Today a lot of people think they should murder their brokers, but my advice is don’t. You can stay out of jail and make a lot of money by learning from the greatest stocks of the last century and by heeding this advice for your future investments.” —Dominick Dunne, author of Justice

“This timely book proves that very few American corporations of any size, any quality, any management dominate for an indefinite period of time. Ultimately market events, consumer needs, and technological changes take over. The only certain thing in life is change. And Jones shows the investor how to recognize that change in order to recognize a portfolio gain. Read this and reap.” —Gerald Tsai, Jr., president, Tsai Management

“Read this book and let Randy Jones’s spellbinding business stories create a happy ending for your portfolio.”—Todd Buchholz, economist, managing director of Enso Capital Management and author of New Ideas from Dead Economists

From the Inside Flap

Learn How to Pick the Right Stock at the Right Time<br><br>The momentum of the bull market spoiled us all―buying stock, any stock, was an almost surefire way to make a mint. Now, in a time of turbulent markets, stock picking has become a mixture of science and high art. With thousands of stocks to choose from, how can investors determine which ones will be future winners?<br><br>We all know there’s a time to buy and a time to sell every stock, but when is the right time? Timing stock buys so that you catch upward momentum is not luck, and Randy Jones shows you how to hone your buying and selling skills by striving to analyze the factors that made winners of the great stocks in the past. Why was AT&T a great stock pick in the 1920s, Polaroid a winner in the ’40s, Xerox in the ’50s, Teledyne in the ’70s, and Intel in the ’90s? The potential of these stocks was in plain sight―for those who knew how to read the signs. And perhaps as important is understanding the signs of decline and knowing when to sell.<br><br>Randy Jones analyzes twenty-five of the greatest stocks of all time, providing a framework for evaluating their strengths that can be used for future selections, including:<br><br>• Linking great management and bottom-line profits: Who were the faces behind AIG, GE, and IBM that led to profitability, and what was it about these people’s management skills that made their companies so great?<br>• Pathbreaking products: Polaroid, Xerox, and Amgen show that products that often seem to be overnight sensations were instead developed over many years, giving investors plenty of lead time to discover their potential as great investments.<br>• The innovative business model: Avon, McDonald’s, and Dell reveal that understanding how a company makes money helps you to understand its strengths and vulnerabilities.<br>• Investing during bad times: For some companies, such as Coca-Cola, Schlumberger, and Chrysler, nationwide economic downturns can actually be advantageous.<br><br>Worth’s Greatest Stock Picks of All Time has invaluable lessons for anyone in the market today.

Reviews

Defying the conventional wisdom that no mortal can outsmart the market, this study of fabulous stock run-ups of the last century argues that ordinary investors can learn to spot winners. Jones, CEO of Worth Magazine, examines past and present Wall Street darlings like Coca-Cola, Avon and Intel to illuminate why some stocks take off and others stagnate. His corporate histories are stylish and informative, and they engagingly introduce novices to price/earnings ratios, book value, return on equity and other measures of a stock's potential. Some telltale signs emerge: firms with patents on hot technologies, like Polaroid, are sure bets, as are those that maintain monopoly pricing power by continually innovating ahead of the competition, like Intel. Other signs, however, are less clear-cut. A company reorganization, a new CEO or an inspired ad campaign can all unpredictably affect a stock, and one pointer drawn from the General Electric saga is to "have faith...if you like the management and believe in them, stick with the company." Such "lessons" make the notion that average investors can pick the right stock at the right time seem shaky indeed. The problem, as Jones makes clear, is that there are many methods of evaluating stocks that don't always tell the same story, and many competing corporate strategies that may or may not pan out depending on a host of imponderables. Investors without the benefit of hindsight or time to pore over annual reports should beware.
Copyright 2002 Reed Business Information, Inc.

This might well have been called "The Greatest Companies of All Time" since this winning list includes such greats as General Electric, IBM, Xerox, McDonald's, Coca-Cola, and Intel. Although all of these companies gave their shareholders a heady ride during their heyday, these top 25 were chosen by the founder of Worth magazine more for their ingenuity, successful business models, and ability to survive and even prosper during stubborn bear markets. Gathered into chapters by theme (such as "Pathbreaking Profits"), the encapsulated company biographies contain a review of each company's market performance and a time line of significant events. Jones gets right to the heart of the matter but doesn't miss out on subtle details, noting, for example, that Polaroid developed a system for glare-free automobile headlamps in the 1940s but the auto industry failed to adopt it because of the additional cost of $8 per car. Along with the heavyweights, Jones includes some long-forgotten companies such as the conglomerate Ling-Temco-Vought, which briefly rose to meteoric heights in the go-go era of the sixties. The only thing missing is the historical stock charts. David Siegfried
Copyright © American Library Association. All rights reserved

Excerpt. © Reprinted by permission. All rights reserved.

From Chapter One, The Link Between Great Management and Bottom-line Profits


ETERNALLY YOUNG
American International Group
1988–2000

AIG was that actuarial’s complaint—the statistical anomaly. It was a big insurance company that was still growing at a gallop, making money in good times and bad. Not many insurance companies could say the same over the last quarter of the twentieth century, which is what made AIG so cool and consistent. In other words, it was an investor’s dream.

When analyzing the quality of a company’s management, it’s natural to start at the top. Not every CEO gets to be a national media star, so it can take a bit of legwork to learn how a company is run. The process is certainly easier when there’s continuity in the executive suite.

Investors who prize continuity hit the jackpot with American International Group. What has set it apart over the years has been management’s insistence that growth take place away from the commodity segment of the business. Every single CEO of AIG felt the same way: both of them, that is.

Two Strong Leaders = One Great Company

From 1919 to the present day American International Group (AIG) has had only two CEOs, Cornelius “Neil” Starr and Maurice Greenberg, and it’s been the better company for it. The latter is bombastic and the former was reticent, but outward personalities aside, their philosophies have reflected the same values, and given AIG a distinct corporate culture. Most of all, the romance of the insurance giant, incongruous as that phrase may be, is a deep involvement in business all over the world. Since the day AIG opened its first two-room office in Shanghai in 1919, overseas revenues have been central to the business, and accounted for about 50 percent of operating income from 1988 to 2000. The company stock was not only an insurance play, but for an individual portfolio, it also offered one-step global diversification.

Both Starr and Greenberg were alike in believing that every center in the business is a profit center, or should be. One arm could not be expected to make up for another. Greenberg in particular has long believed that innovation is essential to AIG’s growth. The company, therefore, cast a wide net, including the more mundane property-and-casualty, marine, life, and auto insurance, of course, but it also would offer the more exotic, such as insuring children in day care against kidnapping and Internet websites from hackers. With so many types of policies and different entities to sell them, “innovation” has translated into a corporate structure so complicated that AIG could be called a corporate spiderweb, woven of as many as 300 subsidiaries.

To say that Greenberg wanted AIG to grow would be an understatement; by his own confession, he has thought nothing else ever since he took over in 1968. One year into his tenure, he oversaw AIG’s first public offering of shares. The stock thrived on Greenberg’s dictum for the company—earnings growth of nearly 20 percent per year. It was easier to say than to do, but from 1968 to 1998 AIG found ways, ridding the books of lagging businesses and starting or acquiring ones with glowing potential. By the mid-1980s, the company easily hit Greenberg’s target, as assets grew by an average of 34 percent from 1984 to 1988, while in each of the four preceding years growth in earnings followed at an average clip of 27 percent. During that time, the stock price languished, due to the pessimistic perception of the whole property/casualty sector. Smart investors may have been accumulating AIG stock, but the price didn’t really start to move until 1988. That year, with Asian markets booming, Wall Street looked for companies poised to benefit. AIG was belle of the ball.

Americans were hearing a great deal about the accelerating overseas economies of the Pacific Rim and AIG offered a ride along with those “tiger” economies. The stock, which had made precious little progress between 1985 and 1988, burst out, showing that insurance could still be a high-growth industry when it encompassed practically the whole world.

From 1988 to 2000, AIG stock increased from a price (adjusted for splits) of $4.85 to $110. A $10,000 investment would have been worth $226,804 after a dozen years. Even more intriguing for investors, AIG was surefooted. The stock moved upward without a noticeable downturn or even a plateau. In that sense, it only reflected the company, which turned a profit even in years when the earnings reports of other property-and-casualty companies were laid waste by hurricanes or other natural disasters. While AIG stock easily outstripped the S&P 500 (average of large companies), as well as its own brethren in the insurance sector, it also stayed ahead of the NASDAQ average. AIG was one of the anomalies of the 1990s bull market, which was largely propelled by nascent high-tech companies: it was old company, old economy, but decidedly high-growth nonetheless.

Blatant Opportunist

One of the things that helps distinguish AIG is its origins. In 1919, fresh from service in World War I, twenty-seven-year-old Berkeley grad and lawyer Neil Starr went to Shanghai looking for opportunity. He found it, all right, in a nation of millions unable to buy their own life insurance.

The Chinese people were going uninsured because the British companies that dominated the business in China wouldn’t consider selling life insurance policies to native Chinese. The only logical reason for the English position was that actuarial tables (which predict average life spans) did not yet exist for the Chinese population. These tables are key, because normally the people who issue policies depend on tables in order to set rates. So, Starr saw quite a business. He founded American Asiatic Underwriters (AIG’s predecessor) and established a pattern when he extended his company to include life insurance for Chinese nationals, estimating longevity and setting rates that ensured a profit.

Another hallmark of Starr’s young company was that its staff was exclusively Chinese. Foreign companies in China nearly always employed their own imported managers and salesmen. Starr hired locals. As his company expanded into other Asian nations and into other types of coverage, he continued the practice of relying on native-born employees. In the late 1920s, Starr, by then married to the daughter of a Canadian missionary, returned to the United States to build up the center of his empire. He purchased several of the insurance companies that his agency represented and started new firms, too, most of them with an overseas connection. During World War II, he was especially aggressive in South American markets previously dominated by German and Italian firms. Privately held, the burgeoning insurance conglomerate made a millionaire of Neil Starr, but he began to neglect it somewhat in the late 1950s, when he had a personal crisis. (He was devastated when his wife left him for a Russian painter.)

Neil Starr’s companies, which would assume the name American International Group in 1967, were global long before most other American financial firms started to look overseas. The difference was patience, as Starr and his colleagues learned the intricate art of insurance on a mosaic of more than a hundred countries. They took the time to understand local customs and to navigate regulations that baffled many U.S. firms. One of the toughest challenges was retaining sharp employees in developing economies, where AIG training often made a worker worth more than even AIG could afford to pay.

The Next Generation

Even though AIG had thousands of policies, offered by hundreds of subsidiaries, the man Neil Starr tapped to replace him believed that the behemoth was basically quite simple. Maurice Greenberg, nicknamed “Hank” after the Detroit Tigers ballplayer of that name, grew up on a farm in upstate New York. He earned a law degree between stints in the army during World War II (in which he landed with the Rangers during the D-Day invasion) and the Korean Conflict. After distinguishing himself in a domestic insurance subsidiary, he was picked as president of AIG. “Sometimes I find a man who has an inner fire, a man who is perfectly in his métier, his orbit,” Starr once said of his ability to choose executives, “and when I do, I back him.”

Hank Greenberg’s zeal for new businesses led AIG to pioneer coverage in many new areas. It insured satellites, offshore oil rigs, and computer networks; it protected companies against the cost of environmental cleanup and corporate directors from shareholder lawsuits. A subsidiary called AIG Political Risk wrote insurance against kidnapping and extortion. With the help of consultants such as Henry Kissinger, AIG continued another tradition, pushing across forbidding political boundaries.

AIG sought permission in 1992 to stage a homecoming and reestablish operations in mainland China, from which foreign businesses had been barred when the Communists took power in 1949. Hank Greenberg stepped up as the lead salesman and worked the prospect tirelessly. Meanwhile, his company quietly cultivated favor by investing heavily in a Shanghai office complex. AIG also took the initiative to locate a set of windows stolen long before from the Summer Palace in Beijing, buying them for $500,000 from a European collector and restoring them to the palace as a gift to the Chinese people.

“It took almost a decade and a half to open China for AIG,” Greenberg wrote. “It took dozens of trips. Most CEOs I know who want to open a foreign company want to meet with the leader of that country once. After that, they believe they’ve done all that’s required. It doesn’t work that way.”

Net income, which was $17.2 million when Greenberg took over in 1968, grew to $50 million in 1975. By 2000, it was $5.64 billion.
...

Edition details

• Publisher: Crown Business
• Publication date: 2002
• Language: English
• ISBN 10: 0609609319
• ISBN 13: 9780609609316
• Binding: Hardcover
• Edition number: 1
• Number of pages: 288