As Gordon Gekko famously said [Movie: WallStreet] " Them analysts don't know stock from livestock."
But some people have become rich by Fundamental Analysis.
People like Warren Buffet and Carl Ican became billionaires buying undervalued companies.
But, one thing...they brought shares worth millions, gained management control of the board of directors and forced the current management to restructure the company.
See the latest Bloomberg magazine to read the article about Carl Ican, the takeover artist of the 1980s.
His strategy is as follows:
1. Identify a potential target for takeover and buy stocks to gain control of the board.
2. If he can not gain control of the company, he buys a stake and lobbies for management to make changes that will boost the firm's share price. These are investments such as Time Warner he makes through his hedge fund.
3. If Ican takes over a company, he installs new management and works to make the company more profitable.
This simple strategy has made him millions.
Ican bought American RailRoad Car Industries in 1994,, investing $ 42.8 millions.
As of Feb 2006, the investment has returned $ 332 million or 880 percent return
In 1998, he invested $ 28 million in New Seabury, a golf and condo development. it is now worth $ 178 million.( 525 percent return )
And $ 157 million investment in 1998 in Philip Services Corp has generated $ 347 million in profit.
The reason I am mentioning Ican is so that you can see how he manages risk
Here are some of his portfolio picks and the profits they generated. (Jan 1996 to May 2004)
1. RJR Nabisco Profit=893 millions
2. Imclone Profit=$ 418 Million
3. Revlon Profit = $ 281 million
4 Beazer Homes Loss= $38 million
5 Marvel Loss= $ 38 million
6 Reliance : loss= $ 33 million.
Here you can see that he let his Profits run but his controlled his losses.
His losses are less than $ 40 million but his profits are in three digits.
The lesson we can learn is :
Just let your profits run and cut back on your losses.
Exercise proper risk control in your investments.
