Sunday, July 17, 2005

My favorite list

The Fortune Small Business 100, the list of 100 fastest growing small public companies is the most useful list out there for long-term investors. This year's list was published a few days ago.

I had mentioned FSB in an earlier post on investing publications of interest to me.

Make sure that you don't respond immediately to publishing of such a list. As in every list, the FSB 100 will have a few that are extremely overvalued at the time of publication. Just add such companies to your watch list and buy on pullbacks.

If you like passive investing, then this list is a god-send. A few of these companies will go bankrupt over the years, and a few will go nowhere. But the ones that get acquired and the ones that turn into the next Starbucks will give you enough gains to offset all your losses in the others, and then some! I suggest investing in all the entries in the list but spread over 3 or 4 installments in a year, both to ensure an average price on the buys and to ensure that you can afford not to buy them at extremely high prices.

Some of these small players even pay dividends, showing that they have a predictable positive cash flow (do confirm that the dividends are not being paid from debt).

The FSB site also allows access to previous years' lists. It makes sense to go over them and check if any have become attractive candidates.


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