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The Reverse Scale Strategy is essentially a momentum investment strategy. A momentum strategy, as the name implies, is one way of hitching your wagon to a rising market. Braden explains how to buy stocks that are going up and how to sell stocks that are falling.
I would classify this strategy as most appropriate for traders; i.e., people who are comfortable with buying and selling securities on a fairly frequent basis. In my opinion, this is not the best starting place for beginners. Beginners should read the FAQ article with advice for them, and might want to browse the bookshelf to find helpful guides on personal finance.
Christopher Lott, (contact me), July 1998
Five Minute Investing focuses on the two main aspects of managing an aggressive stock portfolio: Stock picking and portfolio management. In other words, what to buy, when and how much to buy, and when to sell.
If you have ever tried to make your own investment decisions over a period of time, chances are you spent most of your time wondering what you should do next. You also experienced how time-consuming and distracting that can be. Once you have studied and thoroughly comprehended the concepts in this book, you should never again agonize over which stocks to buy, or how much to buy, or when to sell them. Peace of mind comes from having a plan that will take care of you no matter what conditions prevail. Any portfolio of stocks can be managed effectively and without worry if you carefully follow the strategies laid out in this book. As powerful as it is, this strategy can truly be implemented in five minutes a day or less. You need not think about it beyond those five minutes. As you use and gain confidence in Five Minute Investor techniques, you will find that you think about your stock investments only during those five minutes, not worrying about them all day long as some people do.
The average person thinks that the key to success in the stock market hinges on the ability to pick which stocks will do well. This is only partially correct because even a stock portfolio which is packed with tomorrow's winners can turn out to be a disaster, if managed incorrectly. If there is only one thing that you retain from this book, let it be this: strategy and advance planning are at least as important as stock-picking. The main premise of Five Minute Investing is that without a well-conceived plan, the psychological makeup of most individuals will lead them to make emotional, and mostly bad, decisions. So the emphasis in the book will be on making nearly no subjective decisions. This book gives the average investor a plan to use for managing both the individual stocks in his/her portfolio, and the portfolio as a whole. It is the best blend of risk, reward, and time commitment of any strategy I have seen or used.
While the subject of stock-picking has been addressed in many writings, the one in Five Minute Investing requires little or no time in reading annual reports, financial analysis, and the usual host of activities that most investors commonly associate with picking stocks. Because some of the ideas are unorthodox and run counter to popular belief, it may take some faith on your part to accept them until you see that they work under real-life market conditions. I have devoted the first few chapters of this book to addressing myths and misconceptions, because if you are going to change your investment results, you must first change your way of thinking. These first chapters lay the conceptual groundwork for the strategy and stock-picking criteria developed later in the book. Please check at the door any preconceived ideas about how to be successful in the stock market and try to keep an open mind.
Five Minute Investing requires a longer-term commitment to the stock market. This is a book on stock trading, but not a book on short-term stock trading. That is, stocks are eventually sold but we attempt to hold onto a position for as long as possible - hopefully many years. Most books tend to focus on either how to pick stocks or how to trade them once you've picked them. Often, they are collections of subjective rules of thumb which require years of investment experience before the techniques can be applied with any degree of confidence. This book, on the other hand, will give you a simple, unambiguous method for not only picking winning stocks but also for managing your portfolio.
The Reverse Scale Strategy - the portfolio management technique which is developed in Chapter 7 - will work with virtually any type of stock portfolio, but it gives you your maximum advantage when applied to growth stocks. Using the stock-picking approach suggested later in the book will result in your portfolio being packed with timely, high-potential stocks and these stocks can easily be selected in a half-hour or less.
The term "growth stock" is sometimes taken to mean "stocks of small companies," but that is not what I mean by the term. My definition of a growth stock is a company that is growing rapidly in market value. There have been long periods of time when the return on larger companies has outstripped the returns on small companies. There have also been many periods of time when the opposite has been true. So, both large and small companies can be growth stocks in their season. Whichever the case may be at any given time, the stock-picking section of Five Minute Investing will lead you to them.
Finally, in every case I have tried to avoid the use of confusing financial and stock-market jargon commonly found in books on this subject. My personal feeling is that these types of terms are not well understood by the public and make the world of stock investing seem like alchemy. The emphasis here is on keeping things simple. Because of the simplicity of this strategy, no computers are required for implementation of anything in this book. This will not be the most complicated or scholarly book on stock investing you have ever read, but it will be one of the simplest and most practical. Simplest is best, especially if simple works. Why complicate things unnecessarily?
To summarize, this book is designed to show you a plan for investing that is simple yet complete - one that I have used with a high degree of success for years. Five Minute Investing will allow you to successfully navigate the two main chords of stock investing - stock selection and portfolio management, and also: