Fundamental Analysis

In my previous blog I mentioned that based on my trading experience, I prefer to use a combination of fundamental and technical analysis when selecting a stock or a call option for purchase. Let’s take a look at a recent stock purchase I made to illustrate the fundamental analysis I use to select stocks. My brokerage confirmations below show that today I purchased 1,600 shares of AK Steel at 54.24.

One of the most effective fundamental indicators I use is a company’s intrinsic value growth rate. AK Steel has an average annual intrinsic value growth rate of 148%. My historical price studies show that companies with high rates of intrinsic value growth also have high rates of stock price appreciation. A company’s growth in intrinsic value creates economic value for its shareholders. As a company’s intrinsic value grows the true value of your stock investment grows. Ultimately this is the reason why we invest in stocks and what separates stock investing from all other types of investments. Growth in company intrinsic value has created trillions of dollars of economic value to shareholders and is the foundation of a capitalist economy. Stockholder’s equity provides the capital that creates companies and allows them to grow.

As the intrinsic value of a company grows, the company can increase its production or services. An insurance company can write more policies and a bank can create more loans. An increase in production or services can in turn create more income for a company. I consider investing in a company that is growing its intrinsic value as a real investment. This is different than buying real estate, precious metals or commodities hoping that someone will pay you more than what you paid. This is price speculation. Real estate, commodities and precious metals do not have the potential for intrinsic value growth as stocks do.  

My Wealth Building Formula System invests in stocks that grow their intrinsic value at a 10% or higher annual rate. Let’s examine some historical profit results for a sampling of 10 Wealth Building Formula stocks to give you a feel for the powerful profit potential of this system. Investing $1,000 in 1990 in each of the 10 Wealth Building stocks listed below grew to an incredible $6,018,045 by December 31^st 2006. Results include dividends but not commissions. These 10 stocks represent a broad cross section of different industries from biotechnology to coffee houses. 

$10,000 Investment in Wealth Building Stocks

in 1990 Grows to Over 6 Million Dollars by 2006

60,080% Return versus a 139% Return

The sample portfolio of 10 Wealth Building Formula Stocks just presented handily out performed all other types of investments over the same time period. The table below compares the growth of a $10,000 investment for various types of investments from 1990 through 2006. Over the same time period the Wealth Building Stock Portfolio had a total return of 60,080% compared to an average total return of 139% for US Government Bonds, crude oil prices, home price appreciation and gold bullion prices.

Investment Return Comparisons 1990 - 2006