Cover image for Great companies, great returns : the breakthrough investing strategy that produces great returns over the long-term cycle of bull and bear markets based on the twelve traits of all great companies
Title:
Great companies, great returns : the breakthrough investing strategy that produces great returns over the long-term cycle of bull and bear markets based on the twelve traits of all great companies
Author:
Huguet, Jim.
Personal Author:
Edition:
First edition.
Publication Information:
New York : Broadway Books, [1999]

©1999
Physical Description:
viii, 323 pages : illustrations ; 25 cm
Language:
English
ISBN:
9780767903660
Format :
Book

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Status
Central Library HG4910 .H84 1999 Adult Non-Fiction Central Closed Stacks
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Summary

Summary

Tired of gambling away your savings on investments that don't pay off? Buy Companies, Not Stocks.This simple phrase is the foundation of veteran consultant Jim Huguet's innovative approach to investing, a strategy that focuses on the lasting strengths of the companies you're investing in and yields great returns that consistently outperform the Dow Jones Industrial Average. Designed for investors who are fed up with the taxes they're paying on excessive trading, stressed out by the gambling mentality that predominates today's stock market, and eager for safe investments that pay off big in the long term,Great Companies, Great Returnsprovides the ideal strategy for peace of mind through bull and bear markets. While other investment books tend to focus on mathematical formulas that ignore the companies themselves, the Great Company approach uniquely identifies the qualities to look for in acompany--not just a stock--that make that company the best long-term investment. InGreat Companies, Great Returns, Jim Huguet explains the twelve traits that separate Great Companies from the rest. After decades of working closely with the Fortune 500 and top CEOs as a consultant, Huguet used his valuable experience to research which companies were likely to give the best returns in order to invest his own money. The twelve key traits he discovered--which look at the business as a whole, not just the stock price--form the basis for his groundbreaking strategy. The fourteen companies that make the cut, including such superstars as GE, Coca-Cola, and Johnson & Johnson, as well as some surprises like AIG and Medtronic, fulfill all twelve requirements, and form a perfect list of stocks that investors can use to create a Great Company portfolio. In fact, if this book had existed ten years ago, everyone who invested in the Great Company Portfolio would have beaten the Dow Jones Industrial Average by over 20 percent. Filled with valuable, easy to access investment advice, including checklists for comparing your existing portfolio with the twelve-point Great Company system, stock performance and volatility charts, and detailed information on the fourteen companies,Great Companies, Great Returnsshows readers how to sell off shaky holdings, add the great ones, and spot up-and-comers that might become tomorrow's Great Companies. It also features exclusive interviews with CEOs of Great Companies, including Jack Welch of GE, Alfred M. Zeien of Gillette, Maurice R. Greenberg of American International Group, and William C. Steere, Jr. of Pfizer, for the ultimate insider's perspective. This proven investment strategy has consistently beaten the Dow Jones, and even outperformed Warren Buffet's portfolio of stocks. A simple strategy that beginners can understand and experts can learn from, the Great Companies approach to investing is one no serious investor can afford to be without. How do you invest in the best stock? Pick the best companies. As veteran consultant Jim Huguet's research has shown, most Wall Street money managers are buying stocks for the short term, not companies for the long term. It's one of the reasons that 88 percent of all domestic mutual funds failed to beat the S&P 500 index in 1998, while Jim's Great Companies portfolio consistently beats both the S&P 500 and the Dow Jones. But now, inGreat Companies, Great Returns,every investor can learn the twelve traits that make a company great, and why Great Companies really do make Great Returns. The Twelve Traits of All Great Companies: Highly Regarded by Knowledgeable Experts Publicly Traded Headquartered in the United States In Business at Least Fifty Years and Survived the Founder Market Cap in Excess of $15 Billion Global Company with at Least 40 Percent of Revenues/Profits from International Operations Outstanding Shareholder R


Author Notes

Currently president of Great Companies, LLC, Jim Huguet is the creator and manager of the Great Companies portfolio. A consultant for over twenty years, Huguet worked closely with many of the world's most successful companies, including such high-profile corporations as Anheuser-Busch, 3M, and Johnson and Johnson. In 1994, he sold his successful consulting business and invested upward of one million dollars of the proceeds in the Great Companies. Jim lives in Easton, Connecticut.


Reviews 1

Booklist Review

Huguet worked as a management consultant for more than two decades, but five years ago he sold the company he headed. As he invested his profits, he developed an investment strategy based on the quality of a company rather than on its technical indicators. The result is the "Great Companies" portfolio, which he now manages for Wilson/Bennett Capital Management and which earned him a number one ranking in Nelson's Best Money Managers. Here Huguet details 12 key factors that make a company great, and he profiles the 14 companies that meet all his criteria. Huguet acknowledges his debt to other theorists, such as Benjamin Graham, but he also contrasts the differences between his own and other strategies, such as momentum investing and Graham's value investing. He also shows how to apply his strategy to evaluate emerging companies, international companies, and initial public offerings. To help tailor investment strategy to individual needs, Huguet recommends various ways of allocating investment resources to include his portfolio. --David Rouse


Excerpts

Excerpts

The Great Companies Approach to Investing Why Is Investing So Confusing? Like most investors today, you have probably concluded that you should invest some of your money in the stock market. You may have purchased a couple of mutual funds or even bought a few blue chip stocks, but this is different. The money you are investing now may well determine when you can retire and what life will be like after retirement. Will you live the "good life," or will you be forced to cut back? You begin your investing journey by reading what the financial gurus have to say about "the market" and asset allocation. Some say we are entering a great bear market, while others confide that the bull is still charging. Some say the market is overpriced, while others say it is underpriced. Some say buy, while others scream sell. This should be your first clue that the market is complex. If it weren't so complex, everyone would come up with the same right answer. Your quest to understand how best to invest leads you to articles about indexing, value investing, and growth investing. Each expert touts his or her approach as the best way. Then you are shocked by the reality that last year 88 percent of the domestic equity managed funds failed to beat the S&P 500. You wonder how experts can have such conflicting points of view. Why don't they beat the market year in and year out? To the novice investor, these differences of opinion are confusing and extremely unsettling. You reason that these market experts are smart people who have made a lot of money in the market. If they don't know what to do to beat the market, how can you have any chance at all of successfully investing your money? You then read articles like the one that appeared in the New York Times, explaining why analysts couldn't always be counted on for meaningful advice relative to mergers and acquisitions: In sorting this out, investors get little help from Wall Street analysts, who often play along. After all, companies can come down hard on naysayers. Thomas K. Brown, until recently a banking analyst for Donaldson Lufkin & Jenrette, long criticized the acquisition strategy of the First Union Corporation, which has made more than 70 acquisitions since 1985. As a result, he said he was excluded from one-on-one meetings at First Union's headquarters in Charlotte, N.C. Another analyst, who asked not to be identified, recalled being threatened with a lawsuit by one serial acquirer after publicly questioning its purchases. Why the heavy-handed treatment? "So much depends on the stock price, he surmised." Analysts can also be reluctant to look too closely at any one transaction for fear that their company might lose the lucrative investment banking fees on the acquirer's next deal. A result of this combination of complexity and analysts' see-no-evil, speak-no-evil approach is that the guidepost usually followed by investors-the analysts' estimated growth rate of earnings-can vary so wildly for these companies as to be nearly meaningless. The confusion is compounded by the incessant phone calls you receive from people who can't pronounce your name, calling on behalf of a firm that has three initials followed by the word "securities," announcing that their soothsayer, someone you never heard of, has just found the next Microsoft. These "advisors" casually explain that you will surely double your money if you invest in the companies that they are recommending. But you'd better invest today, for a big announcement is going to be made that will send the stock through the roof. Desperate and feeling totally inadequate, you decide to call a friend who you think understands the market. Surely, he must have the answer, for he is always talking about how much he has made in the market. Typically, your friend knows less than you think but-like most people-will never tell you about some of the real mistakes he has made. So your friend throws out some names, tells you how much he has made, and "sets you up" with his broker. Six months later you are underperforming the market. The mutual funds that did so well last year are down this year. The stocks your broker recommended have declined in value. You are disappointed and disillusioned. Will you ever be able to retire? You feel inadequate and scared. You aren't sure where to go next. The complexities of the market seem to build. You find that there are different classes of stock with different rights. Some shares are preferred; some may be voting shares and others nonvoting shares. Investors who believe the stock will decline "short" the stock. Investors who believe the stock will rise will be "long." Some investors buy options; others buy puts and calls. Some investors trade on margin, others don't. Some use derivatives, others hedge the market. You learn about the various exchanges in the U.S. where stocks are traded. The major exchanges are the New York Stock Exchange, the American Stock Exchange, and NASDAQ, but there are also the Philadelphia Exchange, the Pacific Exchange, and the Chicago Board of Trade. You can buy foreign stocks with ADRs or GDSs. There are foreign stocks that trade on exchanges throughout the world. You can run money offshore or onshore. If you want someone to make investments for you, you can use a broker or a money manager, invest in a hedge fund, or purchase a mutual fund-either closed-end or open-end, load or no-load. Some mutual funds charge a front load, while others have a rear load. Prices may be referred to as the asking price, the bid price, or the NAV. Some people look at PE ratio, others at dividend yield. Investment approaches may include value investing, momentum investing, market timing, indexing, sector investing, and various hybrids. There are IPOs, MBOs, and LBOs to consider. Bonds make this whole mess even more complex, for there are zero coupon bonds, municipal bonds, junk bonds, high-quality bonds, convertible bonds, and bond insurance. Then there is the market impact of interest rates, exchange rates, world events, and the economy. A variety of indexes are used to measure the market, including the DJIA, S&P 500, New York Exchange Index, Russell Indexes, Value Line, Wilshire Indexes, the NASDAQ, and a host of others. There are bear markets when the market goes down, and bull markets when the market goes up. There are market peaks and market bottoms. There are people who chart the market and others who use astrology to predict market direction. There are earnings projections and earnings disappointments. Some people track insider sales and other insider purchases. There are stock buy-backs and new issues. Some analysts look at free cash flow; others try to calculate intrinsic value. There are books, magazines, and newsletters published by investing gurus. There is the Wall Street Journal, Investor's Business Daily, Barron's, and the Financial Times. Additionally, there are videotapes containing the investing secrets of the "chosen," seminars where the experts speak, and financial news networks. You realize that the stock market provides a wonderful opportunity for na*ve or confused investors to "lose their shirts." Unfortunately, many investors don't have a clue how to invest in the market. They are intimidated by all the investing advice they read or hear. They bounce from one mutual fund or stock to another. They don't have an investing strategy, don't understand the companies whose stocks they own, and are motivated by fear and greed. A formula for disaster. It Doesn't Have to Be This Way The good news is that you don't have to be one of these casualties of the market, and you don't need to understand all aspects of the market to make money in it. Most people, even professional investors, don't understand all the ins and outs of the market, and never will. But you do need to understand some investing basics. First, you need to understand that you are buying companies, not stocks, and that some companies are far better than others. The smart investor should focus on individual companies rather than all the ins and outs of the market. Second, you must realize that long-term investing offers a number of benefits, including tax advantages and reduced trading costs. Third, you must be aware that there is always news, either good or bad, that is impacting the market. Fourth, you should adopt investing strategies that make sense to you. The bulk of your wealth should be invested in what we define as a core investing strategy. Finally, you can become a successful investor and make a lot of money in the market without becoming a market expert. Rather than focusing on understanding the stock market, this book helps you focus on understanding what makes for a Great Company. If you study the principles contained in this book and practice them over the long run, you will be able to identify companies that should outperform the market long term. The strategy of investing in Great Companies has been proven over time. In summary, you shouldn't feel inadequate if you don't understand all aspects of the market. What you need to focus on is implementing a core investing strategy based on investing in Great Companies, and this book will help. Introduction This book explains how to single out the stocks of those few great American companies that every investor should own. It explains the twelve traits inherent in all Great Companies and details how you can construct a portfolio of Great Companies stocks that produces outstanding, tax-efficient returns in a variety of market conditions. The investing strategy detailed in this book doesn't require you to know much about the ins and outs of the stock market, and it doesn't require you to spend lots of time monitoring its ups and downs. That's because this strategy is based upon identifying and buying into companies, not into stocks. But it's not about buying just any companies--it's about buying the stocks of a highly select group of Great American Companies that have delivered outstanding results for years, and will continue to outperform for the foreseeable future. If you are like a number of my friends and associates, you have become disenchanted with the performance of your mutual funds. Since 88 percent of all domestic equity funds failed to beat the S&P 500 index in 1998, the odds are that you are ready to dump your managed funds. You may have grown so unhappy that you sold some or all of your managed funds and moved most of your money into index funds. On your own, you decided to venture out and buy the stocks of a few really good companies that you knew something about. These companies might have included Coca-Cola, Gillette, Merck, or General Electric. They are companies that you believe will continue to perform well over the long term regardless of the twists and turns of the markets. Over the last several years you noticed that these stocks outperformed the major indexes as well as the mutual funds you once owned. Unfortunately most investment books and magazine articles tout the stocks to own today, or the ten hottest stocks for this year, not the stocks to own forever. These books and articles are focused on short-term returns, stocks that are selected by a computer, and investment strategies that cost you a bundle in taxes. To counter these flawed approaches, this book presents a logical, easily understood investing strategy that should shape the core portfolio of virtually all investors, regardless of age or income. By "core," I mean at least 30 to 40 percent of all your investments should be in equities, the foundation on which your wealth should be built. Had you invested equally in all fourteen stocks of the Great Companies of America on December 31, 1988, you would have beaten the S&P 500 index by 55.6 percent during the ten-year period ending December 31, 1998. Had you invested on December 31, 1993, and held your stocks for five years, your investment would have exceeded the S&P index by 49.65 percent. Long-term investors who invested on December 31, 1978, would have outperformed the index by approximately 41.95 percent. Nineteen ninety-eight returns would have equaled 28.75 percent compared to the S&P 500 index of 28.58 percent. More than that, you would have taken the steps required to implement a core investing strategy, a low-risk, tax-advantaged way to build wealth with large-cap stocks while allowing for international diversification. Core strategies differ from other investing strategies in that they are long term, tax efficient, easy to understand, and proven, and provide excellent returns relative to the level of risk. This differs from "black box" strategies that buy stocks rather than companies, cost you dearly in taxes, and often underperform the market at high levels of risk. After reading this book you will: Have acquired a logical investment approach that has beaten the market by 55.6 percent during the last ten years. Understand why a core investing strategy is important, and why it makes sense regardless of your age or current wealth. Know the twelve traits that make a company a great investment. Know how to apply a checklist for identifying a great investment to a wide variety of companies in different businesses. Be able to sleep soundly, knowing that you are investing in the best-managed companies in the United States, and perhaps in the world. Does this sound too good to be true? Let me tell you how it evolved. The Development of the Great Company Investing Strategy Several years ago, after I sold my consulting company, I suddenly had more money than I had ever dreamed of but absolutely no idea how to invest the proceeds. I had spent most of my professional life building my consulting business and traveling all over the country. I had a 401(k) and owned a few mutual funds and some stocks, but when it came to the stock market, I was a novice. I decided that I quickly had to learn a lot more about investing and the market, or risk losing my one opportunity for financial independence. My search for a sound investing strategy began with great optimism and enthusiasm. I was searching for an investing strategy that was easy to understand, had been proven over time, produced excellent tax-adjusted returns that beat indexing, and would result in a relatively low-risk portfolio. I really don't know if I was driven more by fear or greed (the two worst emotions an investor can possess), but I wanted to make sure I knew how to invest my money in the best way, leaving no stone unturned. First, I thought it would be a good idea to study both the classic and new books about investing in the stock market. I picked up The Intelligent Investor by Benjamin Graham, the father of value investing, reasoning that since Warren Buffett is a disciple of Ben Graham, this would be a great place to start. I read books by Peter Lynch and a host of other writers on the dynamics and pitfalls of the market, and I read as much as I could about mutual funds. With the billions of dollars pouring into funds, I felt that I should be better informed. With this reading as background, I met with various money managers in an effort to understand their philosophies and approaches. I also read books about money managers and, through my reading and discussions, realized that each manager had a unique approach. Needless to say, some were more successful and convincing than others. Next I attended investment conferences at various locations around the country. Then I purchased Morningstar on Floppy in hopes of finding the answer. I subscribed to Barron's and watched CNBC and Bloomberg for tips from the top. I attended the Money Show in Boston. I searched the Internet and subscribed to all the top investment newsletters. All my research convinced me that I had to invest heavily in stocks if I was to retire and have a decent lifestyle. In the long run, I discovered, the returns on stocks are so stable that stocks are actually a safer investment than government bonds or treasury bills. But despite all this studying, I still didn't know which stocks I should put my money in. As a result of my efforts I learned the following: Approximately 62 percent of the domestic equity mutual funds fail to beat the market in any given year. I found out the hard way that funds that beat the market one year normally "tanked" the next. Even more discouraging was another realization: funds that beat the market several years in a row often had so much money pour in that the nature of the fund changed and performance declined. Timing the market was impossible. I was invested with one of the most famous market timers, the "guru" who called the 1987 crash, when she exited the market in July of 1996. I, along with other investors, sat on the sidelines while the market soared to new heights. It seems that everyone on Wall Street can pontificate ad nauseam on why the market went up or down, but none can reliably predict when it will go up or down. Short-term in-and-out investing gains are quickly eaten up by taxes. It was exciting to see a stock's value jump by 20 percent in one month, but the taxes paid on the short-term gain dampened my enthusiasm for this investing approach. Momentum investing was overhyped. The momentum traders could turn a portfolio 300 percent to 400 percent in one year. This generated huge commissions for my broker but less than impressive tax-adjusted returns for me. I wondered, if companies were good enough for the manager to buy in the first place, why not keep the stocks longer? I also wondered why, if the stocks were so good, the stock price dropped so rapidly when some-thing happened. I was told I just didn't understand momentum investing. The articles identifying the "Next Microsoft," "The 10 Hottest Mutual Funds for 1999" or "The Stocks You Can't Lose On" seemed to overpromise and underdeliver more often than I could imagine. While all of the authors presented compelling reasons for their selections, performance seldom met expectations. Investment professionals weren't as much help as I expected either: Some approaches were so complex that they defied comprehension while others defied common sense and logic. There were a few people who were helpful, but you really had to dig to find them. People who could not explain their investment approach referred to themselves as "stock pickers," a term that made me more than a little nervous. Chartists/Technical analysts seemed to have charts for every occasion, but few had the right chart for the present situation. History may repeat itself in the stock market, but I have found that chartists are no better than market timers at predicting the future. There were very few really outstanding money managers. Most of those who were successful either added numerous funds to their portfolios, became more involved in managing than stock picking, or sold their businesses and took the money and ran. I was at a loss. I asked friends for advice but found that they didn't even know as much as I did, a scary thought indeed. I momentarily contemplated investing everything in index funds. Perhaps it was crazy to think about beating the market. But somehow I just couldn't resign myself to mirroring the indexes. I reasoned that there had to be an approach that would not only beat indexing, but was also logical and easy to understand. About this time, my twenty-plus years of consulting experience kicked in. I had learned long ago that if I was trying to solve a difficult problem and the answer wasn't forthcoming, I hadn't dug deeply enough for the facts. I had found that if I really opened my mind and focused on the issue, the answer would leap out at me. I always knew it was the right answer because it was so simple and obvious. I renewed my research efforts, but this time my research took a different direction. For over thirty years I have had the honor and privilege of working for or consulting with what I considered to be well-managed companies like Procter and Gamble (my first employer out of college), Bristol-Myers Squibb, Coca-Cola, Colgate-Palmolive, Gillette, Johnson & Johnson, and others. During these assignments, I met and got to know many of the managers within these companies. They were a very talented and impressive group. All of a sudden, it hit me. Why not let these outstanding managers go to work for me? Not as consultants, but as managers of my money. I would invest in the best-managed companies in the world. So I turned to books and articles about the best-managed companies in the U.S. and around the world. I read about a number of outstanding companies that were highly regarded by the management gurus and the major business magazines. Surely this was the answer. However, as I began to compare shareholder returns of these wonderfully managed companies, I found that many of them failed to meet or exceed the S&P 500 index. It was then that I realized that investing in companies that were simply well managed didn't provide the investment answer I was seeking. Disappointed, but not discouraged, I reasoned that well-managed companies did not always produce great returns, and that companies that looked good from a financial perspective might not measure up when management was really scrutinized. However, if I could isolate a few companies that were well managed, highly regarded within their industry, and attractive from a Wall Street perspective, I might have the answer. I concluded that if I invested in these companies, their managers would help me beat the market over the long term. Additionally, I realized that I would be able to sleep at night knowing that my money was in the hands of the best managers and greatest companies in the U.S. I also knew that if this approach worked, my taxes and trading costs would be minimized because I would buy and hold these stocks for a long time. Reviewing a variety of statements by Warren Buffett, I found that Buffett, arguably the greatest investor of our time, endorsed the strategy of investing in great companies. His approach wasn't fully detailed, but the basics were contained within the Berkshire Hathaway annual reports (a real treat to read) and the speeches and interviews Buffett had given over the years. But What Makes a Great Company? I quickly realized that the most difficult part of this strategy would be defining a Great Company. Answering this question raises two absolutely critical questions that investors and analysts must answer before they invest: Do great returns make a great company? Do great companies make great returns? If you believe that great returns make a great company, then all you need to do is enter the financial screens that you believe are important in identifying a great stock, compare a cross section of stocks with these screens, and buy the stocks that pop out of your computer. This approach is often referred to as quantitative management or modeling. Any money manager with fifty or more stocks in her portfolio is using some type of quantitative approach. Those with over 100 stocks in their portfolios are using purely quantitative measures to select stocks. Since only 12 percent of all domestic equity mutual funds beat the S&P 500 index in 1998, perhaps there is a better way. That is why I believe that great companies make great returns. It's easy to say, "Invest in great companies." It's a little tougher to define the elements that exist within all great companies. The confusion exists because the experts evaluating a company typically view it from only one perspective. For example, the management experts who wrote In Search of Excellence and Built to Last sought companies that were well managed. They talked about culture, management, and focus. Unfortunately, they didn't examine or rate the qualities of the businesses in which the companies were engaged, a critical factor from the perspective of the chairmen and CEOs of great companies. Investment analysts examine a company's returns from the perspective of the professional investor. However, what's important to the investment expert is often meaningless to the management expert and may differ greatly from the CEO's perspective. For example, CEOs of the great companies felt that a company should operate as a global entity, deriving at least 40 percent of its revenues from overseas. The financial experts never mentioned this international presence as important. Finally, there is the operational perspective of the CEO. These men and women live in the real world of quarterly returns and boards of directors. Some of the factors that are important to them are not of concern to the management and investment experts, and vice versa. Previous experts attempting to define a great company reminded me of the proverbial three men trying to describe an elephant in pitch darkness. The one feeling the trunk had a very different perspective from the one holding the elephant's leg, and the man holding the tail had yet another perspective. Like accurately describing the elephant, defining a great company requires taking into account a variety of perspectives. Only when you combine all the perspectives into a single definition and identify the specific qualities common to all great companies, can you spot a truly great investment opportunity . . . and no one had ever done that. Ultimately, I was able to distill a list of twelve factors common to all great companies--factors that became invaluable in separating the great companies from the merely good ones. I developed the original list of companies to study from the annual Fortune issue that lists "America's Most Admired Companies." Fortune asks "top executives, outside directors, and securities analysts to evaluate the companies in their industry on each of eight criteria." My list was supplemented by other well-managed companies identified in several highly regarded management books. As I finalized the selection of companies for my Great Companies stock portfolio and began to match returns to my strategy, I realized that I had developed an investing strategy that had handily beaten the S&P 500 index over five, ten, and twenty years. Additionally this strategy met my original criteria: It delivered returns that, over time, were superior to indexing. It provided tax-advantaged returns, since I would hold the stocks for the long term. It was logical and easy for the average individual investor to understand. It was efficient because commissions and management fees would be low. It focused on safe, secure, large-cap stocks, the kinds of stocks and companies I feel comfortable owning. Once I had formulated the strategy, I decided to show it to several investing professionals and get their input. The first person I discussed the concept with was Ralph Goldman of PaineWebber. Ralph works with many of the top money managers in the United States and is highly regarded within the investment community. To my surprise, Ralph was extremely supportive. "I've looked at literally hundreds of money managers," he said, "but your approach is truly unique and is a logical core investing strategy." More than that, he immediately began to purchase some of the stocks for his personal portfolio. It's one thing for someone like Ralph to say he likes an investing strategy, and quite another for him to put his money where his mouth is. With increased confidence in the Great Companies strategy, I decided to write a book based on investing in Great Companies to help ordinary investors build wealth. Since I started writing this book, I have asked a number of my friends, very bright people in their forties and fifties, how they invest their money, and have found that most people I know don't really have a plan for building wealth. They typically explain that they are too busy managing their careers and spending time with their families to devote the time needed to managing their money. A few have purchased speculative stocks on tips. Most of these people have lost a lot more than they've made. Some have purchased stocks in what they view as outstanding companies, but when queried admit that they really don't have a formalized system for defining what makes these companies great investments. The more I study this approach and its results, the more convinced I become that the Great Companies strategy should form the foundation of virtually every investor's portfolio. I have invested over seven hundred thousand dollars of my own money in these Great Companies, and have developed a Great Company of America managed account for investors. Who Can Benefit from the Great Company Investing Strategy? This book was written for investors who are: Frustrated that the performance of their stock portfolio is below their expectations. They now realize that most mutual funds fail to beat the relevant index in a given year, and have learned the hard way how difficult it is to select a market-beating mutual fund. Confused about the world of investing. They have read books, attended conferences, subscribed to newsletters and magazines, and are totally confused by the contradictory messages they have received. Short of time. These investors are busy with their careers and simply don't have the time to develop a sound investing strategy. Relying primarily upon indexing. These investors got tired of investing in funds that failed to beat the index. They turned to indexing out of frustration, but believe that there has got to be a better way to invest. Just beginning their investing journey. Novice investors will be able to read and understand the investing strategy that is outlined in this book. Successful investors. These investors have been successful but are searching for another strategy that is compatible with their investing approach and will add diversity to their portfolio. Paying too much in taxes. Investors who are realizing significant short-term gains but paying high taxes will find the investing strategy outlined in this book of real value. Preretirement investing. If you are searching for a relatively low-risk investment strategy that produces excellent returns over time, you will find this book of value. Retirement investing. If you are retired and are concerned about outliving your money, you may find that this approach is far more attractive than fixed-income investments. Financing college. If long-term capital growth with relatively low risk is important to you, then this approach should be of interest. Just starting out. If you are just starting to build wealth, then you will see tremendous value in this approach. Great Companies, Great Returns provides all types of investors with a core strategy that has been proven effective over time. Its logical approach has been endorsed by some of the most highly regarded investors. It will help the reader understand what to look for in a company by explaining the twelve factors common to all Great Companies. Personal interviews with the chairmen and CEOs of Great Companies will provide the reader with a better understanding of what makes for a great company from an operational perspective and reveal how specific companies have been able to achieve greatness. Finally, specifics on how the reader can get started investing in the Great Companies will be presented. This book will prove beyond a doubt that the Great Companies investing approach outperforms the market at low levels of risk and with minimal tax impact. Let me emphasize that the Great Companies Strategy is a long-term approach (ten to twenty years) rather than a get-rich-quick in-and-out approach to the market. If you are seeking the magic answer, you have picked up the wrong book. However, if you are looking for an index-beating core strategy, then you have picked up the right one. The book is organized as follows: Chapter 1: Why Great Companies Produce Great Returns. What a core investing strategy is and why the Great Companies strategy is appropriate for virtually every investor. Chapter 2: What is a Great Company? The twelve traits of all Great Companies as well as the fourteen companies that passed our screens. Chapter 3: The Twelve Traits of the Great Companies. The twelve traits are explained in detail. Chapter 4: The Great Companies. Profiles of each company, including candid interviews with the chairmen and CEOs of four Great Companies that reveal never-before-published insights. Chapter 5: Applying the Great Companies Strategy. How investors can modify the screens used to identify the Great Companies and develop new stock portfolios based on the Great Companies criteria. Chapter 6: Turning Your Portfolio into a Great Companies Portfolio. The step-by-step process investors can follow to convert their current portfolios into Great Companies portfolios. Chapter 7: Great Companies Investing Options. The various investing options, including direct purchase, brokers, mutual funds, individually managed accounts, and hedge funds. Chapter 8: Managing and Monitoring Your Great Companies Portfolio. Passive and active strategies for managing the portfolio, and how to track a portfolio once it is in place. Chapter 9: Reducing the Worry Factor. Ways you can cope with the risks inherent in investing in the stock market. Investing in Great Companies is a strategy that won't go out of style, for it has been proven over the years in a variety of market cycles. Furthermore, the strategy's focus on maximizing returns while minimizing risks and taxes meets the needs of virtually every investor. I suggest that you read the book as it is organized, for it is important to understand the concept of core investing strategies before you study the qualities of a great company. Excerpted from Great Companies, Great Returns: The Breakthrough Investing Strategy That Produces Great Returns over the Long-Term Cycle of Bull and Bear Markets by Jim Huguet All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.

Table of Contents

Introductionp. 1
1. The Great Companies Approach to Investingp. 15
2. What Is a Great Company?p. 37
3. The Twelve Traits of Great Companiesp. 59
Screen 1 Highly Regarded by Knowledgeable Expertsp. 64
Screen 2 Publicly Tradedp. 66
Screen 3 Headquartered in the United Statesp. 67
Screen 4 In Business for at Least Fifty Years and Survived the Founderp. 69
Screen 5 Market Capitalization in Excess of $15 Billionp. 71
Screen 6 Global Companies with at Least Forty Percent of Revenues/Profits from International Operationsp. 76
Screen 7 Outstanding Shareholder Returnsp. 78
Screen 8 Terrific Businessesp. 79
Screen 9 Protected by Strong Barriers/The Moat Effectp. 96
Screen 10 People Are the Company's Most Valuable Assetp. 103
Screen 11 An Outstanding Management Team That Keeps the Company in "Prime"p. 105
Screen 12 Innovation-Driven Companies That Turn Changes into Opportunitiesp. 107
4. The Fourteen Great Companiesp. 112
American International Group, Inc.p. 119
Maurice R. "Hank" Greenberg, Chairman and CEOp. 122
Bristol-Myers Squibb Companyp. 132
Citigroup, Inc.p. 135
The Coca-Cola Companyp. 139
Colgage-Palmolive Companyp. 141
General Electric Companyp. 144
John F. "Jack" Welch, Chairman and CEOp. 148
The Gillette Companyp. 168
Alfred M. Zeien, Chairman and CEOp. 171
Johnson and Johnsonp. 182
Medtronic, Inc.p. 186
Merck and Company, Inc.p. 189
Merrill Lynch and Company, Inc.p. 192
Pfizer, Inc.p. 196
William C. Steere, Jr., Chairman and CEOp. 199
The Procter and Gamble Companyp. 212
Schering-Plough Corporationp. 216
5. Applying the Strategy to IPOs, International Companies and Great Companies of the Futurep. 220
6. Allocating Your Funds into a Great Companies Portfoliop. 231
7. Do I Need A Broker?: Five Investing Options for a Great Companies Portfoliop. 250
8. Managing and Monitoring Your Great Companies Portfoliop. 272
9. Reducing the Worry Factorp. 288
Appendixp. 303
Sourcesp. 313
Acknowledgmentsp. 319

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