Acknowledgments xi
Introduction 1
My Background 3
Chapter 1: The Psychology of Investing 7
Singles and Doubles Are Better 7
Tune Out the Noise 10
EPS Explained 11
Chapter 2: Purple Chips versus Blue Chips 17
Finding the Purple Chips 18
Minimum Seven Years of Positive and Growing EPS 18
Smooth and Predictable Growth in EPS 19
Minimum Market Capitalization of $1 Billion 23
Purple Chips versus Common Blue Chips 24
Dilution is a Value Killer 28
Dividends, or Getting Paid While You Wait 31
Purple Chips Make Money for Investors 31
Keeping It Simple: The Purple Chips Model versus Ratio Analysis 35
Con Edison versus Entergy 36
Wendy’s versus McDonald’s 37
General Mills versus Kraft Foods 39
Google versus Yahoo! 41
Chapter 3: Understanding and Seeing Valuation 43
The Normal Curve: An Odds-Based Approach 43
The Shifting EPS Line: A Quick Gauge of Value 45
Valuation Reset 49
Chapter 4: What Else You Need to Know 55
Earnings Trend 55
Value Traps 59
Valuation Trend 62
The P/E Ratio and Growth 69
How to Build a Portfolio of Purple Chips 71
Diversification 71
Position Size 72
Stop Loss Orders 73
No More Anchoring 74
Market Crashes 76
Do It Yourself 76
Chapter 5: When to Buy and Sell 79
Step 1: Draw the EPS Line 79
Step 2: Set the Buy and Sell Targets 82
Step 3: Adjust the Buy and Sell Targets 83
Buying Checklist 84
Selling Checklist 84
Chapter 6: Practice Case Studies 91
Case Study: Abbott Labs 93
Summary 106
Case Study: AutoZone 108
Summary 117
Case Study: Johnson & Johnson 118
Summary 127
Case Study: General Dynamics 129
Summary 136
Chapter 7: Purple Chips Summarized 137
Endnotes 141
Index 143
About the Author 149
John Schwinghamer is a portfolio manager with a major bank in Montreal. He started his career in 1984 as floor trader at the Montreal Exchange and then became a stock broker and an expert in derivatives. John has also held management and partnership positions in several investment firms, and he currently manages the portfolios of a select group of clients. He has a B.Comm. in finance from Concordia University, as well as extensive securities industry accreditation. He is a lead judge for the International Case Competition at the John Molson School of Business at his alma mater. He has also been an expert witness in derivatives court cases. John lives in Montreal with his artist wife and has three children.
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