BEFORE RETIREMENT Income/Expenses Savings Calculations INVESTMENTS Criteria Stocks

Stock Selection Criteria The following, gives two major criteria for stock selection. There are obviously many more, but for now lets look at the two most important. Growth: Investors want growth, and will pay a premium for it. I feel it is best to find an industry that is in a long term growth phase, then buy the best one or two stocks in that industrial area. The Wall Street Journal gives a daily tabulation of the "Dow Jones Global Industry Groups"  performance.  This list shows the total growth over the past seventeen years for  each of nine industrial areas, and the underlying   type of company .  My basic assumption is that past growth rates are  a reasonable estimate of future growth. Here is a listing of the relative growth, based on a total growth for the market to 1150 from a start of 100 in 1982 ( a 15.6 % compounded growth rate over the past 17 years).   Industry Group Relative growth Conglomerates Conglomerates 2400 Consumer, Non-Cyclic   2100   Beverages, soft drinks 3250   Pharmaceuticals 2600   Non-durable 2550 Technology   1480   Software 17650   Semiconductors 4200   Ad. medical devices 3050   Biotechnology 2300   Computers 1850   Communications 1700 Consumer, Cyclic   1400   Retail drugs 3500   Retail apparel 3400   Cable/broadcast 2600   Retail broadline 1850 Financial   1300   Security brokers 2300   Diversified 1750   Banks-regional 1800   Banks-international 1200 Industrial   700 Basic Materials   600 Utilities   650   Telephone 1150   Electric 300 Energy   500   Oil-major 850 This is a good place to start the search for the best growth segments of your portfolio. Value The common tool with which to judge the relative value of different companies is the "P/E" ratio, i.e. the ratio of the price of the stock to the yearly earnings of the company. These figures are broadly available; again, see The Wall Street Journal. Each industrial group has it's own average , long term P/E.  Some like, the technical stocks, have a P/E of 30 or more. Other sectors have a value of near 15 ( telephone utilities) and some as low as 10 to 12 ( autos, steel, etc.).  The Value Line Investment books, found in the public library, will give the best feel for these numbers. I will later put a tabulation of industrial sectors and their long-term P/E values on this page. Summary: Putting the above factors together( plus many more), into a final decision is the "art of investing". See the Stocks page for a list of securities that should fit into almost anyone's portfolio.

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