One hobby of mine gave me an edge in the investing world.
Gardening.
In my spare time, I keep a flower garden.
To grow a healthy flower garden, there are three important steps that I follow:
- Prepare the soil by tilling and weeding the ground.
- Choose and sow the right seeds and plants.
- Maintain the soil and plants so they grow to their full potential.
The same three steps are vital for a successful next-generation investment portfolio.
To flourish in the stock market, preparation, choice and maintenance are paramount.
That’s why I’m going to tell you exactly how to get started in a special three-part Winning Investor Daily series. I invite you to take the journey with me.
Starting today, I’m going to share how you can position an investment portfolio so it reaches its fullest and most profitable potential … starting with step one: preparation.
So let’s dive right in.
Grow a Booming Next-Gen Portfolio
Step 1: Preparation
The first step, preparation, is vital.
Whether you’re new to Winning Investor Daily or a longtime reader, you may know the theme of my colleague Ian King’s “Next Gen Effect.”
As editor of the Strategic Fortunes monthly research service, Ian lives and breathes Next Gen Effect investing.
What this means is that 2.0 is always bigger and better than 1.0.
Think of Facebook overtaking Myspace, or Google zooming past Altavista.
But we’re seeing this everywhere in the Information Age.
The Next Gen Effect encompasses the future of technology.
Right now, a great technological paradigm shift is happening.
We are transitioning from the 1.0 industrial world to a 2.0 technologically driven society.
These new 2.0 technologies sprout from the select mega trends we follow:
So to prepare your portfolio, you first have to weed out 1.0 stocks. This will make room for you to take full advantage of the companies in these mega trends.
Just like in my flower garden, if I don’t pull weeds regularly, those same weeds will overtake the garden and stunt its growth.
Weeds are simply plants growing in the wrong place.
So the first step to constructing a viable 2.0 investment portfolio is to weed out troubled 1.0 companies.
Spot the Signs and Avoid These 1.0 Companies
1.0 publicly traded companies feature one or more of the following financial characteristics:
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- Declining sales over the past three to five years.
- Buying back stocks and lifting dividends despite having declining business as seen by declining sales.
- Borrowing money, and if sales are declining, effectively borrowing to buy back stocks and pay dividends.
- Buying companies at irrational valuations that have no real chance to change their underlying businesses.
- Facing technological obsolescence.
- Losing market share to new companies because their brands are falling out of favor or because their products or services are considered out of touch with the times.
- Facing the prospect of having to move their plants and factories to other countries without the cash to do it.
You see, as the next generation of investing unfolds, 1.0 companies facing these financial challenges will soon fade away. New innovations will boom and bloom right over them.
The key to building a portfolio for future stock growth is to rid it of fading 1.0 companies and sow it with 2.0 companies within our mega trends.
Remember: To have a flourishing 2.0 investment portfolio, preparation, choice and maintenance are paramount.
This three-part series on “How to Build Your ‘Next Gen Effect’ Portfolio” will help guide your path.
I look forward to taking this investment journey together.
Be sure to tune in next Tuesday, September 6, for “Part 2: Choice.”
I’ll show you 1.0 companies that you should avoid and clear out of your next-gen focused portfolio.
Until then, please feel free to follow Ian and me on Twitter for a daily dose of timely investment information, keeping up with the next generation of stocks.
You may find us at @InvestWithIan and @ALancasterGuru.
Until next time,
Director of Investment Research, Strategic Fortunes