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No. of Recommendations: 59
KP Guide for Newbies

Welcome to the Kua`aina Partners (KP) board. We welcome new investors, and our only requirement is a willingness to learn.
The first thing you should do is to read the Foolish 13 steps to investing:

There are many good investing message boards here at the Motley Fool, as many as there are investing styles. If you want to learn about general investing this is a good group to follow, but there are many others geared specifically to new investors. The Beginning Investors board comes to mind.

Beginning Investors Message Board FAQ
(that board is geared specifically to beginning investors)

The best advice I can give you before plunging into the list of resources that follows is to always read the Frequently Asked/Answered Questions, a full list of them for the different discussion boards can be found here:

If you need help with message board navigation and other tips please go here:

The Fool school has a treasure trove of information:
and the web resource list is also very comprehensive
Web Resource List

Please don't hesitate to ask questions in the KP board. We have a number of smart people that populate our club and even though at times it may take a couple of days we'll have answers to your questions. By posting questions and comments we all learn, no matter what the level of the investor. Even if you don't feel like posting, please use the Recommend It! feature to alert other people of good posts.

KP Mission:
A collection of friends in search of very high return stocks using a variety of methods. We not only concentrate on using Rule Breaker and Rule Maker methods to find outstanding investments, but we look beyond TMF to embrace Gorilla Game, Fisher, CANSLIM, TA, MI and any other methods than can lead to high returns. The important thing is to learn together and to keep an open mind.

The previous version of this post, A Comprehensive Guide for Newbies, can be found here:
There you can find a number of useful resource links, some which will be repeated here.

Table of Contents:
1. Reading Lists
NJ's list, TaysPop's list
2. Investment Methodolgies/Resources
LTBH, TA, RB, RM, Fisher, CANSLIM, MI, Value, GG
3. Resources for researching stocks
Screening web sites, Understanding Financials, Competition, Evaluating companies
4. Formulas we use
RM Formulas, Financial Statement Terminology

1. Reading Lists:

NukeJohn posted a list of his favorite investment books and rankings of books in his library. The 5 star books are highly recommended.
NJ's Investment Library list and rankings
NJ's 5 star books
NJ's 5 Star Investment Books Are, in no particular order:
The Intelligent Investor - Benjamin Graham
Secrets For Profiting in Bull and Bear Markets - Stan Weinstein
Trading for a Living - Dr. Alexander Elder
How To Make Money in Stocks - William J. O'Neil
How to Buy (The Insiders Guide to Making Money in the Stock Market) - Justin Mamis
Stock Market Wizards - Jack Schwager
Trader Vic - Methods of a Wall Street Master - Vic Sperandeo
24 Essential Lessons for Investment Success - William J. O'Neil
When To Sell - Justin Mamis
One Up On Wall Street - Peter Lynch
Reminiscences of a Stock Operator - Edwin Lefevre
Riding the Bear(How to Prosper in the Coming Bear Market) - Sy Harding
Common Stocks and Uncommon Profits - Philip Fisher

TaysPop posted an outstanding reading list in the l'union fait la force FAQ:
"The Warren Buffett Way" by Robert G. Hagstrom, Jr.
"Buffettology" by Mary Buffett
"Buffett – The Making of an American Capitalist" by Roger Lowenstein
"Inside the Tornado" by Geoffrey A. Moore
"The Gorilla Game" by Geoffrey A. Moore
"The Innovator's Dilemma" by Clayton M. Christensen
"Common Stocks and Uncommon Profits" by Philip A. Fisher
"Security Analysis" by Benjamin Graham
"The Motley Fool Investment Guide" by David & Tom Gardner
"Rule Breakers, Rule Makers" by David & Tom Gardner
"A Random Walk Down Wall Street" by Burton A. Malkiel
"One Up On Wall Street" by Peter Lynch
"Beating the Street" by Peter Lynch
"The Book of Investing Wisdom" by Peter Krass
"The Inner Game of Investing" by Derrick Niederman
"How to Read a Financial Report" by John A. Tracy
Investing Methodology Resources

2. Investment Methodolgies/Resources

There are many styles of investing represented in this group. I am mostly LTBH (hard as it may be in this type of market), and I wrote a series of posts about Long Term Buy and Hold (LTBH):
LTBH Series links
LTBH Series Introduction
LTBH II: Selecting LTBH stocks
LTBH III: Jumping into the Market
LTBH IV: Monitoring LTBH stocks
LTBH V: When to sell
I also put together a list of reading resources to help new investors in this post:

Technical Analysis (TA) educucation sources:
Technical Analysis - Basics
Invest FAQ has a great number of useful articles:
Clearstation Education
"The Visual Investor: How to Spot Market Trends", by John J. Murphy. School
Some TA basics by joelinda1

NukeJohn's description of his TA system NJTA:
IcyWolf summarizes all of the posts in the KP board on NJTA:

Rule Breaker Strategy
RB Seminar Summary
RB Board FAQ
Resources from RB Seminar

Rule Maker Strategy
RM Portfolio FAQ:
Rule Maker 11 Steps:
RM Seminar Resources

Fisher Principles
Fisher's 15 Points in Detail posted by Rubic
mlc11 posts a variation of Fisher's points here:
A book club study of CSUP can be found starting here, in the RM Grads July 2000 board:

dbphoenix's website, DB's Burrow
CANSLIM FAQ by dbphoenix
"How to Make Money in Stocks" by William J. O'Neil

Mechanical Investing (MI)
LAPropDoc's Guide: New to Mechanical Investing & the MI Community
Foolish Workshop FAQ

Value Investing
(We consider all investing value investing, and as such valuation is included in many of our fundamental analysis methods)
Index of Fool Valuation articles by wallstgal

Gorilla Game (GG) Resources
(A lot of KPers are fond of GG methods, despite falling out of favor recently, I think it still provides a good framework for technology investing as long as more stringent valuation criteria are added to the method)

Gorilla Game FAQ version 1.2

GG FAQ at Silicon Investor:
FAQ. Version 2.03. Part I. Last updated 01/28/2001 by Fred Manzo
Part II

Complete Trilogy: GG vs RB/RM/RT by xerohype

Comparing Fisher to GG by xerohype

Gorilla Game study in the RM Seminar Grads board
(Contains summaries of Gorilla Game chapters)
Chapter 1 summary by ConsultHR
Chapter 2 summary by mayacourt
Chapter 3 summary by mlc11
Chapter 4 summary by badlemming
Chapter 5 summary by xerohype
Chapter 6 summary by xerohype
Chapter 7 summary by ConsultHR
Chapter 8,9 & 10 summary by ConsultHR
supplement on ORCL case, Ch. 8 by ConsultHR
supplement on CSCO case, Ch. 9 by ConsultHR
Chapter 10 Summary by omahafool
supplement on Customer Relationship Management Software
Chapter 11 Summary by mayacourt
mlc11 adds some great resources
Chapter 12 Summary by ConsultHR

3. Resources for researching stocks

Screening web sites:
MSN Money
CBS MarketWatch
Yahoo! Stock screener

Understanding financials
I - Drippin' Groovy "Back to Basics" (Intro to SEC Forms)
II - Back to Basics
III - The Balance Sheet
IV - Noncurrent Assets
V - Current Liabilities Explained
VI - Understanding Noncurrent Liabilities
VII - Finishing the Balance Sheet
VIII - Fun With Numbers
IX - Balance Sheet Finale
X - Introducing the Income Statement
XI - Income Statement Demystified
XII - The Cost of Doing Business (COGS)
XIII - Income Statement Odds & Ends
XIV - Today's Buzzword : EPS

Useful articles for deciphering financial statements:
Statement of Cash Flows
The Value of Cash Flow
Cash Flow Efficiency
Calculating Cash Flow Ratios
Current Assets on the Balance Sheet By Phil Weiss (TMF Grape)
What Is Free Cash Flow? By Bill Mann (TMF Otter)
The Many Faces of Debt By Phil Weiss (TMF Grape)
Return on Equity
Return on Equity
Return on Invested Capital (ROIC)
How to Read a Balance Sheet
Introduction to Valuation
Return on (Marginal) Invested Capital

TMFSelena posted a series of very helpful articles on how to decipher the various parts of a financial statement over in the RM Seminar FAQ board. You may want to check them out if you are having problems understanding financial concepts.

The Balance Sheet
The Income Statement
The Statement of Cash Flows
Different Names for the Same Thing
Simpler Balance Sheet
Simpler Income Statement
Simpler Cash Flow Statement

To learn about a company's competitors, you might find these websites useful:

Virtual Pet's Industry Research Desk
Industry Information Web Page
Small Business Development Center National Information Clearinghouse's Industry Listings
U.S. Business Reporter - Industry Research
Industry Research on Lycos
Yahoo!'s Research by Industry

Articles on how to evaluate companies:

* The Fool's School (especially "How to Value Stocks" and "Investing Basics")
* How to Evaluate Management
* Using ROE and ROA
* Don't Ignore Ratios
* The Importance of Enterprise Value
* Four Great Investing Equations
* 10 Things to Look for in an Annual Report
* An Investor's Guide to Conference Calls
* Calculating Cash Flow Ratios
* Analyzing Industries
* The P/E Is Not a Magic Number (Part 1 and Part 2)
* Rule Maker Metrics (Part 1 and Part 2)
* The Uselessness of the Price-to-Sales Ratio
* Four Ways Investors Are Tricked
* What Is Your Company Hiding?
* Where Fools Do Their Research

4. Formulas we use

Use Income Statement
Sales Growth = (Current Sales/Year-ago Sales) - 1
Sales growth of at least 10%
It is okay if both income statements are for a single quarter (as long as it is the same quarter, different years) or both are for a full year

Use Income Statement
Gross Margins = (Sales - Cost of Goods Sold)/Sales
Gross margins of at least 50%

Use Income Statement
Net Profit Margins = Net Income/Sales
Net profit margins of 7% or greater

Use Balance Sheet
Cash-to-Debt Ratio = Cash/(Long Term Debt + Short Term Debt)
Cash no less than 1.5x total debt

Use Balance Sheet
Foolish Flow Ratio = (Current Assets - Cash)/(Current Liabilities - Short Term Debt)
Foolish Flow Ratio below 1.25

Use Cash Flow Statement
Cash King Margin = (Operating Cash Flow – Capital Expenditures)/Sales
Cash King Margin = Free Cash Flow/Sales
Cash King Margin of at least 10%

ROIC = Net Operating Profits After Taxes / Invested Capital

Net Operating Profits After Taxes (NOPAT), the numerator, is perhaps the best metric to measure the cash generated by operating activities. It is better than net income because it excludes items such as investment income, goodwill amortization and interest expense, which are non-operating in nature.

NOPAT equals:

Start with:
+ Reported Net Income

Add back:
+ Goodwill amortization
+ Non-recurring costs
+ Interest expense
+ Tax paid on investment and interest income (effective tax rate X investment income)

- Investment and interest income
- Tax shield from interest expenses (effective tax rate X interest expense)

As for invested capital, the denominator, it represents all the cash that debtholders and shareholders have invested in the company. Invested capital can be calculated by subtracting cash and equivalents and non-interest bearing current liabilities (NIBCLs) from total assets. Cash is being subtracted because it does not yet represent operating assets. As for NIBCLs, which include accounts payable, income tax payable, accrued liabilities, and others, they are subtracted from capital because they bear absolutely no cost (interest-free). Note that to calculate ROIC, we use the average invested capital for the period.

Invested Capital equals:

Start with:
+ Total assets

- Cash, S-T investments and L-T investments (excluding investments in strategic alliances)


Capital Expenditures includes:
Acquisition of Property and Equipment
Capital Expenditures
Capitalized Software Costs

Cash includes:
Cash equivalents
Marketable securities
Short-term marketable securities
Investment securities
Other securities
Short-term investments
Trading assets

Cost of Goods Sold includes:
Cost of Product
Cost of Services

Current Assets include Cash and:
Accounts receivable
Trade accounts receivable
Accounts receivable -- related parties
Other receivables
Loan receivable
Inventories (includes raw materials, work-in-process, semi-finished goods, and finished goods)
Deferred tax
Prepaid income tax
Prepaid assets
Other prepaid expenses and receivables
Other current assets

Current Liabilities include:
Accounts payable
Income taxes
Current portion of long-term debt
Accrued liabilities (expenses)
Deferred/unearned revenue
"Other current liabilities"

Long-Term Debt includes:
Notes/Loans payable
Bank line of credit
Capital lease obligation
Preferred stock
Convertible notes

Operating Cash Flow includes:
Net cash provided by (used in) Operating Activities

Short-Term Debt includes:
Short-term debt
Short-term borrowings
Current portion of long-term debt
Debt maturing within one year


Please respond to this post with any corrections, additions or comments. Recs are always welcome!


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