ChangeWave Investing is a philosophy, a growth-stock-picking strategy, and portfolio-management system rolled into one. The basic philosophy is simple: I believe the greatest power driving the future appreciation or depreciation of business value (in other words, future amount of profitability) is transformational change.
That means incidences of transformational change at the industry or corporate level are the most accurate leaders of future stock appreciation.
I've found from my years of research into the dynamics of change and stock prices that transformational change, and how a company does or does not embrace and leverage it--more than any other business or analysis factor--determines the profitability, and thus the appreciation potential, of a company. Stock market bubbles notwithstanding, my research says that, in today's world, creating and managing transformational change and innovation is
the strategy of building the economic value of a business--everything else is just tactics.
The primary takeaway from this entire book is this: If you are lucky enough to have found genuine transformational change beginning to explode within an industry or company, you've found a genuine investment opportunity--an investment opportunity that just could change your financial life forever.
Because when you find genuinely transformational change, you find big winners and big losers. What the ChangeWave strategy helps you do is:
-Find the highest-magnitude (read: "most profitable") transformational changes occurring within industries and
-Locate the sweet spots of investment opportunity (read: "best-performing market spaces") within these waves of
transformation we call ChangeWave
-Put your money on the winning stocks within these hot market spaces and keep it away from the losers, the victims
of transformation change.
In other words, ChangeWave Investing helps you get "luckier" than most investors will ever be.
We use a set of simple rules to search for and analyze the magnitude of changes occurring in our economy to gain a relative context.. This set of rules acts like a "change analysis prism" to determine the biggest potential winners and losers in our perpetually changing world.
In ChangeWave Investing, we use fixed laws of human behavior to put the blurry snapshots of a rapidly changing world into focus. When you apply the virtually never-changing laws of human behavior to a rapidly changing business situation, repeatable patterns emerge that can significantly enhance your investment returns.
This lens or analytical prism acts as radar does for a pilot landing in a blur of fog. Rapid rates of change create a foglike condition that makes it very difficult for most investors, and indeed the financial community, to get their bearings. Our prism helps us see through the fog and discover the value hidden to most investors.
Perhaps Terry Matthews, self-made multibillionaire in telecom equipment, defined the ChangeWave Investing strategy best in an interview with Forbes
magazine. "You've put yourself out on a board," he said. "A lot of waves come in, but only about one wave in ten is a big motherin' wave that will give you a great ride. That's the only wave I want to catch."
While I agree with Mr. Matthews wholeheartedly, I'd add one thought: While he is referring to the great waves of creative destruction in technology (where huge technological leaps lead telecom companies to rip out billions of dollars of old gear and replace it with billions of dollars of new gear), there are great waves of new spending and huge waves of increased profits in all
types of industries.
Transformational change is an equal-opportunity wealth builder and destroyer. It is not just about tech stocks.
You as Master Change Analyst
The focus of ChangeWave Investing 2.0
is to show you how to become a successful change analyst. When you become one, you'll be able to apply your knowledge to making more money in your stock portfolio than you have ever made before.
What you actually become good at is separating true
investable change from its lower-magnitude, less-profitable incremental change. (This skill is also quite beneficial in helping you to improve your business and career decisions, too.)
The key advantage ChangeWave investors hold is developing high levels of confidence in reading and reacting to rapidly transforming industries and companies a little earlier
and a little better
than everyone else does. Our ChangeWave portfolio management strategies also help you hold on to these winners during market turbulence when others sell prematurely.Your Edge on the Market
In investing, you need only a little edge to outperform the market as a whole. The effectiveness of the ChangeWave Investing strategy in everyday buying and selling of stocks points to the impact of the edge we offer.
How effective? Well, the application of the strategy and buy/sell/hold tactics has resulted in buying and selling stocks that have delivered on average 75%-a-year growth in our model portfolio since 1995. Including the Nasdaq crash of 2000-2001.
We'll start with the basic concepts and strategies necessary for you to become a first-class "change analyst," which is crucial to your success in monster-stock hunting. Then we'll get into the blocking and tackling of Growth Appropriate to the Business Cycle portfolio management, ChangeWave style.
But before we get to the strategy and tactics, given the crazy stock market of the twenty-first century so far, perhaps we should start with why you should bother investing in growth stocks in the first place.
Excerpted from ChangeWave Investing 2.0 by Tobin Smith. Copyright © 2001 by Tobin Smith. Excerpted by permission of Crown Business, a division of Random House LLC. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.