Fundamental Analysis and Position Trading: Evolution of a Trader

CHAPTER 13

How to Double Your Money

One way to double your money is to fold it in half and put it back in your pocket. That is a joke, but trying to double your money is no laughing matter. This chapter looks at fundamental factors that are common to stocks that double in price.

I used split unadjusted data in my analysis. Why? Because in a historical price series, a stock priced at $10 would have a value of $5 after a two-for-one split. Telling readers to shop for stocks priced at $5 would be wrong because they cost $10 pre-split.

I used the same Value Line database, but removed stocks with splits. That left 769 companies with 5,315 samples, or about half the usual number of samples, covering the years from 1992 to 2007. Not all stocks spanned the entire range.

Before you read further, be warned that just because a stock has one, many, or all of the attributes that follow is no reason to believe that it will double within five years. I owned one stock that doubled in a week. Others flat-line like dead animals or worse—go down.

The following is not a presentation of a statistics curve fitted to show great results. Rather, the discussion reveals characteristics common to stocks that doubled in price, including dividends.

HOW LONG TO DOUBLE?

In what year did price first double? To answer that, I compared the year 0 price and found that 26 percent of the samples showed price doubling sometime during the next five years, based on closing prices at year-end with dividends added. I ...