The Superstock Investor.Profiting from Wall Streets Best Undervalued Companies. C. LaLoggia, C. Mahon


If you’d been born in a cave and had lived there your entire life, with no knowledge of radio or television signals, you would probably be skeptical if someone were to tell you the air waves were filled with conversation, political commentary, advice for the lovelorn, hot stock tips, music, and even pictures. Of course, without a radio or television you would not be aware of the existence of such signals. The signals would be all around you, but you’d be oblivious to them without the means to pick them up. Similarly, if you are accustomed to a certain way of reading the financial news, you can pick up “signals” that a certain stock that seemingly has nothing much going for it will soon rise dramatically in price. Why? Because something is about to happen which will
literally force the stock market to recognize that stock’s true value. I call such stocks “superstocks,” because they can leap above any kind of market in a single bound.

I began publishing my stock market newsletter as The CML Investment Letter—currently named Superstock Investor—in December 1974. Along the way I developed a reputation for being able to spot neglected companies that were about to become stock market stars— not because they suddenly became supergrowth companies or had developed a ground-breaking new technology, but because something was about to happen that would send that stock price to a much higher level that better reflected that company’s value as a business. Usually, that “something”—an outside event, or what I call a “catalyst”—had the effect of pushing the stock price higher in one sudden jump rather than gradually over time. Seemingly, that outside event came out of the blue. But in reality that event was the logical conclusion to a series of events that began with a single clue, or Telltale Sign, that strongly suggested what the ultimate outcome would be.

This book shows you the clues, or Telltale Signs, that can point you toward stocks like these. I know these Telltale Signs exist because I have been using them for 25 years to pick countless takeover targets. My success in recognizing these signs is a matter of public record, as you will see. During one particularly productive 55-month period through September 2000, a total of 48 of my recommended stocks received takeover bids. I want to make one thing perfectly clear at the outset, though: What you will learn in this book is not a “get rich quick” method of investing. There are no sure things in the stock market except this: There are no sure things!

I have seen countless systems and approaches to stock selection and market timing come and go. Many work for a while—sometimes for quite a while—and then fall into disfavor and disrepute because they simply stop working. Nobody knows why. Some resurface years later and begin working again, “discovered” by a new generation of investors. But that is not what this book is all about. This approach is not a “system”—rather, you will learn a new way of thinking and a new way of observing the day-to-day financial news that passes your way. This new way of thinking is not meant to supplant any other approach to investing you may already be using—it is meant to supplement it.

It can become a way to add to the mix of your investment portfolio by uncovering interesting and usually off-the-beaten-path stock ideas that can not only be profitable, but also rewarding on a purely intellectual basis. In addition, you will find that the stocks you uncover by using this method will usually march to their own drummer and will not be as affected as most stocks by the shortterm emotional winds that buffet the stock market. In effect, this approach will provide you with a sort of “offline” portfolio of stocks that travels along its own path, with each stock in the portfolio responding to events that are, for the most part, divorced from the events affecting the rest of the stock market. Almost all of the 48 stocks that received takeover bids during that 55-month period ending in September 2000 were on my newsletter’s recommended list because, based on the approach described in this book, I considered them takeover candidates.

No “magic” insights will be revealed here; instead, this book will describe what
I have observed to be true over 25 years—that a certain event or development tends to lead to another, which ultimately results in the birth of a “superstock.” Think of this book, and the approach it describes, as a road map. The map will point out guideposts and landmarks that can lead you toward a takeover target that suddenly jumps in price because an event has occurred and the stock market has no choice but to value it at—or very near—its intrinsic value as a business.

In the same way professional poker players can see certain behavioral patterns and use them to their advantage, you will learn to spot certain Telltale Signs that may seem meaningless or unimportant to most investors but will be highly significant and meaningful to you. These signs will point you in the direction of potential superstocks. Let me repeat that the approach to investing you are about to learn is not a system. The key to this approach is interpreting the news.

This type of interpretation involves experience and a determination to delve into areas that most investors have neither the time nor inclination to examine. To be honest, it isn’t easy to implement. Over the past 25 years, I have explained my approach to countless thousands of subscribers, as well as journalists and the viewers and listeners of many television and radio programs. The approach to interpreting the news has never stopped working, for two reasons. First, it is far too complex and involves far too much judgment, experience, and willpower for most investors.

Second, it involves human nature—it describes what companies and their management and major shareholders tend to do during the years, months, or weeks prior to an event that forces the stock price higher. In other words, it describes the sort of rational decision-making and human behavior patterns that tend to emerge when someone— either inside or outside the company—believes a stock is severely undervalued and intends to do something about it. And that type of behavior is not likely to change, no matter how many people learn to recognize it.

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