Nine Basics of Sound Investing

Hewitt Heiserman Jr. is the author of "It’s Earnings That Count." He also is a fellow contributor to’s Real Money.

Hewitt’s columns tend to focus on quality of earnings issues. His site, Earnings Power, focuses on several ways to use quality of earnings as a stock selector, on both the long and short side See this Business Week article for more details). I’ve been playing with some of his ideas, combining earnings quality with quantitatively screened earnings momentum; I haven’t finished backtesting it yet, but at first blush it appears to be a very effective tool for finding high growth, low risk stocks. (I’ll update this sometime in the future).

His approach is very different than mine. I’m a top down, macro strategist; he’s a bottoms up, funadamental analyst. Regardless, I find his perspectives refreshing, and particularly enjoy when he addresses larger investment themes. Hewitt’s writings are chock full of the kind of common financial sense which is all too uncommon on Wall Street.

His column last month was a perfect example of this: Nine Basics of Sound Investing. Here’s an excerpt:

"Wall Street is awash in numbers, and sometimes all of these
figures can make it hard to see the forest for the trees. If you occasionally
feel lost in the woods, here are some ideas from my book It’s Earnings That
that can improve your investing results and give you some peace of

Get your financial house in order

Save and invest regularly

Formulate a business plan

Take an accounting class

Be skeptical of analysts’ reports

Create an on-deck circle of stocks.

Don’t throw Hail Mary passes

Learn from your mistakes

Take care of yourself


Each of these topics are expounded upon in typical Hewitt style: straight forward, common sense advice. I haven’t seen Hewitt’s book yet, but if its anything like his columns  then I’m going to have to take a look . . .


Nine Basics of Sound Investing
Hewitt Heiserman 1/13/2005 4:00 PM

Category: Investing

Granville Predicts 2005 Dow Crash

Joe Granville is a very well regarded technician (now in his 80s) who has had some terrific calls in his career, and a few duds  as well. On Bloomberg, there was a story on his most recent commentary, but I cannot seem to find it now; It more likely got moved than disappeared for nefarious reasons.

Anyway, Joe just got Bearish big time. Here’s an excerpt:

"Joseph Granville, who accurately forecast in 2000 that U.S. stocks’ bull market would end, is at it again. He expects the Dow Jones Industrial Average to suffer its biggest annual loss this year since the Great Depression.

“We’re in the critical portion of a coming collapse and the market’s screaming to get out,” said Granville in an interview from Kansas City, Missouri. “Everyone’s bullish. There’s going to be a tremendous surprise and it’s going to be to the downside.”

"Granville, publisher of the Granville Market Letter since 1963 and a technical analyst for almost 50 years, also foretold a stock-market decline in 1976. He misfired in 1982 and 1995 by calling for losses before share prices surged.

The 81-year-old analyst expects the Dow average to retreat to at least 7400 by year-end. The forecast amounts to a plunge of 31 percent. The last year in which the benchmark fell that much was 1937, when it lost 33 percent.

As a technical analyst, Granville predicts the market’s direction by using criteria such as trading and price patterns, rather than earnings and economic growth. He started developing his stock market theory at what was then E.F. Hutton & Co., a New York-based brokerage, from 1957 to 1963."

That bodes well for my 2005 forecast, as Joe tends to be early. I’m still looking for one last strong move up — Dow 11,700, Nasdaq 2600 — before it all heads south. Note that also gives me the opportunity to stay long if the uptrend remains in tact.

One of the key mistakes to avoid – call it the peril of predictions — is to  never marry a forecast, especially your own. People wrap up too much ego in what is essentially educated guesswork. If you start with the assumption that your prediction is going to be wrong, its real easy to reverse yourself when necessary . . .

If you are interested in learning more about Granville,start with this article — Just Like Old Times as Joe Granville Yells `Sell’ — it gives some background on him if you are unfamiliar with his work.

Some more background on Granville:

Timing the Market

Joe Granville, father of the On  Balance Volume (OBV) and its analysis

Bibliography of Published Books


UPDATE: March 18, 2005  7:09 am
Mark Hulbert provides the details on Granville’s track record. Not impressive (unless you are a fan of the Black Swan event . . .)


UPDATE: I still cannot find this anywhere, but a friend captured the text. Here it is for your enjoyment:


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