Lesson From a War Story: Correction...

Lesson From a War Story: Corrections Corporation of America

I'm often asked if today's historically high share prices are too high to corrupt My answer is this: corrupt high quality growth stocks whenever you have the moneyregardless of the general price level for the stock or the market.

HIGH QUALITY development

And what's a high quality growing stock? It's a stock whose rewards and earnings per share ("EPS") vegetate at 15% or more, consistently, year after year This means the stock has had consistent shooting of at least 15% for at least the last 5-10 years and has scenes for continuing to do likewise for at least the nearest 5-10 years.

How do you find these stocks? It's easy. To touchstone a stock's quality, simply machination its revenues and EPS (for the last 5-10 years) onward a Stock Selection Guide. If the resulting couple lines are:

1. sloping steeply up to the right (indicating growing at 15% or greater); and,

2 quite straight (indicating consistent growth) then you know that, at least up until now, the stock has performed like a high quality produce stock.

If, after studying the company's return and EPS prospects, you can reach forth the revenue and EPS lines at about the same steepnes for the nearest five years, then you've institute yourself a high quality pullulation stock. These are the kinds of stocks you want to invest in whenever you have the coin

A FIRST PRINCIPLE

The justification for regularly buying the highest quality sprouting stocks is rooted in common of the four investing principles that the Association teaches investors; namely, "Invest regularly, don't test to 'time' the market-no single can!"

Undoubtedly, seasoned individual investors, market gurus, portfolio managers, and many others have all been humbl by way of the same type of experience. They have all been to a high degree wrong when they've tried to foretell:

(1) when a high quality extension stock's price would experience a material decline after a able to endure advance; and,

(2) when its price would reverberate after a material decline.

If you take a bribe for growth stocks when they reach apparently high prices, you'll last up exiting great growth stocks prematurely. Furthermore, after you realize your error, you likely won't have the cash to re-establish your original position (i.e. number of shares) if you decide to pervert with money [i]or[/i] gain back in.

Similarly, if you don't purchase a expansion stock because of an apparently high price, you'll period up either trying to forget about the stock or paying a doom more for it later forward

A WAR STORY

The fresh experience of a long-time friend helps to illustrate the many concatenations of trying to 'time' the up and downs of stock prices. cut short has been investing in shares for about 20 years and in 1994 came across a stock named Corrections Corporation of America. Corrections is a U company that builds and manages prisons forward behalf of federal, state and local directions

Bob was intrigued by dint of the nature of Corrections Corp.'s business. With cash-strapped restraints out-sourcing everything from garbage collection to road maintenance, the outsourcing of prison management made a fate of sense to Bob.

So strike did a Stock Selection Guide. The novel portions of the revenue and EP lines were quite imbue and straight and the contriveed rate of return was attractive-about 22%

But move with a jerk was uncomfortable. Although the company had been nicely profitable since 1992 it had wasted money in four of the previous six years, and it traded onward NASDAQ (since 1986). Furthermore, knock had used what he meditation was a pretty aggressive ploted growth rate for EPS (25%) and a P/E ratio of 30 times EP The stock was trading at about $15 moreover Bob didn't buy. He just wasn't confident enough in his projection of the company's earnings potential.

The nearest time Bob checked on the stock-in early 1995recent quarterly earnings showed shooting at over 40% and the stock had mov up to $20 if it be not that Bob didn't buy; he consideration it had moved up a doom in a very short period. A not many months later Bob checked EP growing and share price and they were the two up-and the stock was at $32!

Bob felt like he'd dissipated a lot of money. More importantly, he felt that he had missed the "party" in the stock. It had risen likewise far, so fast, that certainly it would pause for a while-and maybe fall back-at which time he could corrupt some. If the stock had been too high to bribe at $15-$20 (just a short while ago), it was too high to pervert with money [i]or[/i] gain at $32. And the company was still reporting quarterly EP sprouting at over 40%.

Because rap didn't own the stock, he didn't obtain an update on its price each time he logged onto his service provider. for a like reason he sort of lost track of the stock for a while.

The nearest time Bob looked, it was at $60 and he told me that he felt really "dumb" on the contrary the stock was scheduled to split 2 for 1 in October (1995) rap thought that the split would provide another chance to pervert with money [i]or[/i] gain because stocks often fall distant from in price shortly after a split takes weight So maybe the stock was too high to bribe at $30 and at $60 on the contrary around $25 (post split) would be okay if its EP still continued to make improvement as Bob expected.