The 100 Best Stocks You Can Buy 2005 (100 Best Stocks You Can Buy)

Rating:
Summary: Excellent book on the great companies
Review: I read and liked Mr. Slatter's previous 2004 version of this book, so I picked up this one too. Each company is described in great detail, so you get a good idea of their business, the products they make or services they provide, how they operate, management's approach to business, and their record of past earnings and dividends. There are many familiar names here, such as Johnson and Johnson, Proctor and Gamble, Walmart, General Mills, Coca-Cola, Merck, IBM, Medtronic, but also many other companies that you may not have heard of that have been around for decades and have consistently been profitable or increased earnings or dividends over time, such as Illinois Tool Works, which has been around since 1912, has paid a dividend since the 1930s, and during the decade 1993 to 2003, earnings went from .92 to $3.37, a compound annual growth rate of 13.9 percent, and dividends went from .25 to .94, for a growth rate of 14.2 percent.

Besides detailed profiles of all the companies, there are also sections on The Essentials of Successful Investing, Some Thoughts on Analyzing Stocks, How To Avoid Portfolio Blunders, 21 Ways to Reduce Investment Risk, What's Wrong with Buying Mutual Funds?, A Novel Approach to Asset Allocation, How to Get Started, The Pros and Cons of Dollar Cost Averaging, Basic Terminology, and How My 100 Stocks Were Selected.

For example, Mr. Slatter points out the importance of diversification, picking stocks that have a history of a rising trend of earnings, that have a return on equity of 15 or better (an excellent way to immediately gauge the historical and overall performance of a stock), the use of dollar cost averaging, asset allocation, and many other useful topics.

One thing that may surprise many readers is Mr. Slatter isn't a fan of mutual funds. Ninety percent of mutual funds underperform the market. This usually isn't because of poor stock picking by the management, but because of several other reasons: mutual fund fees and expenses can be as high as 3 percent, mutual fund expense ratios reached a high of 1.6 percent in 2002, and stock turnover costs are about 0.8 percent. These expenses are enough to cause most mutual funds to perform below the market.

Futhermore, picking a mutual fund isn't that easy anymore. As of the late 90s, there were over 5000 mutual funds, more than there are stocks on the New York Stock exchange, all of which have various approaches and different levels of risks. For these reasons, Slatter isn't a big fan of mutual funds and instead favors putting together a portfolio of high quality stocks yourself. And by distributing them throughout all the different industries and sectors, from high tech to retail, you can achieve sufficient diversification without having to own a mutual fund.

Interestingly, the economist who developed the modern theory of stock diversification (and who won the Nobel Prize in Economics for this contribution) showed that picking only one or two of the top companies from each sector was necessary in order to achieve sufficient diversification. Moreover, because most mutual fund companies own hundreds of stocks, they often run out of first-rate stocks and are forced to buy the second and third-tier stocks, thus diluting their performance. The small investor, however, has no such limitation, and can cherry-pick and put together a smaller portfolio of stocks that would make a typical mutual fund manager green with envy.

Overall, a fine book on investing, and not the least of its virtues is that it's well written and fun to read.

Rating:
Summary: Book full of old information
Review: This book provides a terrible disservice to investors because it uses quotes from experts many of which are 2 or 3 years old! On Wall St. circumstances can change in an instant. Some of these companies could be bankrupt by the time this book is in print.