Organic Growth

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The 6 Keys to Building a Winning Stocks Portfolio – Part 1 of 6 “Organic Growth”

By Dr. Thomas K Carr

The following article is adapted from Dr. Carr’s forthcoming new book, “Stop Trading, Start Investing: the 6 Keys to Building a Winning Long-Term Portfolio”

The first key to finding investment-worthy stocks is to find companies that display organic growth.  I’ll explain what that phrase means in a moment.  First let me prove to you just how powerful a predictive indicator this first key is.  Typically, financial analysts measure growth by noting increases in both bottom-line (earnings per share) and top-line (sales revenue) numbers.  So what would happen if we took the companies in the S&P 500 that ranked among the top 20 for their 5-year earnings per share growth rates. And of those we took the top 5 ranked companies for their 5-year sales revenue growth rates.  If we bought only those companies at the beginning of each year, held them for one year.  Then ran the screen again at the end of each year and changed positions accordingly. What would our returns look like over time?  Take a look below in Fig. 5.  Here are the results over the past 15 years of buying only the best top-line and bottom-line growth companies among the S&P 500: (Click on the image to enlarge, then press the back button on your browser to return to the article)

stocks portfolio

Fig. 5: 15 Year Test of S&P 500 Growth Companies

You can see that while the S&P managed a total gain of around 70% (3.6% annualized with compounding), our top 5 growth companies gained more than 20 times that!  Had you invested only $2,000 in each of those 5 companies back on January 2nd, 2000, by December 31, 2014, you’d be sitting on a stocks portfolio account worth over $157,000!

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