The MAGNET Approach

In his book Magnet Investing (Next Decade, Inc; 2000), Jordan Kimmel, president and portfolio manager at the Magnet Investing Group, details the MAGNET stock selection process, which he says contains underlying fundamentals that are important, whether you're buying small, medium, or large cap stocks. That's because the top-performing stocks, he says, display common characteristics. The term MAGNET is an acronym that describes the following characteristics of the companies that should attract investors:

  • M stands for management and momentum. A quality company must have outstanding management. In addition, momentum, the relationship of a stock's share price to the overall market, must be improving.
  • A is for acceleration of earnings, revenues, and margins. Kimmel suggests a minimum increase of 15% in quarterly revenues and earnings as a solid investing benchmark.
  • G stands for growth rate, which must exceed current valuation. Ideally, Kimmel says, when a stock is purchased, the current market valuation of a company, based on its price-to-earnings ratio, should be one half its growth rate.
  • N is for new product or new management. Often, a new product will create renewed awareness of a company, and new management signals a change in direction, which could also draw investors' attention.
  • E represents an emerging industry or product. Often, this can signal great investment opportunities.
  • T means that timing must be right. In effect, the company is technically poised for a large price increase.

    The key, Kimmel says, is recognizing that in today's market there are no sacred cows. That's why careful analysis is critical in selecting quality investments.

    Careful consideration should also be given to selecting an experienced wealth advisor who is able to work in collaboration with your other financial advisors, such as an accountant or estate planner. "That coordination is the key to a successful investing plan," Moriarty says. "You wouldn't believe how many people undervalue that. What we're trying to identify for each individual investor is, for each additional percentage rate of return, how much incremental risk or volatility the investor is willing to accept. That's the key, and it's all about gaining trust with your financial and wealth advisor. It takes a little bit of time, but it's well worth the investment in the end."

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