To profitably navigate in the stock market look forward, not in the rear view mirror, and think globally, not just domestically. The current global build-out is far larger than many people realize. As a result of the internet and mass communication, the world population is quickly becoming more consumer-driven. 

While our politicians are talking about democracy, the real issue is simply the opening of the free market. The Communist from China goes onto the Internet the same way the Socialist does from Sweden.  The result is what I call ‘The Inter-boomer Generation.’  Everyone from everywhere wants to participate in a higher standard of living. As a result, we are seeing increased demand internationally from the Inter-boomers. This will translate into a boom in assets over time. The global markets will grow significantly over time. We can build fences to keep people from coming into our country – but these barriers do not exist in the financial markets. 

Only 40 years ago, the New York Stock Exchange was closed to celebrate surpassing one million shares of trading in a single day.  Now we routinely see 2.5 billion shares per day on both the NYSE and the NASDAQ.  The time will come within a decade where we will see 10 billion share days. Imagine the profits of the financial service firms at that time. Over the few next decades, innovative new industries will emerge. Whether it is underwater or outer space development, biotechnology or medical equipment--everything will get funded, built, and collateralized. Financial firms will underwrite these new issues and collect fees. The earnings from new companies, companies that do not yet exist today, will help drive the economy.

To identify companies to invest in, I use a quantitative model that screens for value, growth and momentum investing. I call these “Magnet Stocks.” Top line revenue growth leads the model, followed by profit margin acceleration. Magnet Stock companies must be generating cash flow, while also trading at an acceptable valuation. These companies must have already started to appear on some “radar screen,” and create positive price momentum. Ideally, I also want to find these Magnets early, when management is still receiving modest salaries, and owns a considerable amount of shares. This is the time in a company’s growth phase that management is most focused on doing what is best for the company.

By quantitatively searching for companies that are experiencing pricing power, accelerating top line revenue growth, margin acceleration, and accelerating free cash flow, I think long-term and tune out naysayers. Pessimistic times like these provide the best buying opportunities. If the market continues to take these companies higher, and they continue to score out properly on The Magnet model, we will own these companies indefinitely.