"Best Books on Investing"
Your Next Great Stock - Jack Hough

This book makes our best books on investing list because it discusses stock picking, stock screening (and stock screeners), and introduces the concept of Net Payout Yield.

The book has four sections.

1. Be a stock picker

The first section makes the case for stock picking as a way to beat the market. Stock picking is not a universally accepted idea – particularly in academic circles. Written in layman’s terms, Jack Hough makes a compelling argument for stock picking while keeping this a pretty easy read.

2. Stock Screening
(what Financial Statement numbers mean)

The second section discusses several stock screeners and things you can screen for. The description of some of the financial terms and their relationship to the financial health of the company is particularly useful.

3. Investing Strategies for Stock Screeners

Twelve unique stock investing strategies are described in the third section. There is a chapter devoted to each. In addition, there is a chapter describing the investment style of some of the best – Warren Buffet, Peter Lynch, William O’Neill, and Martin Zweig – investing gurus.

For me, one of the shortcomings of the book is the lack of statistical supporting evidence that the twelve strategies have worked over long periods. But the references to the research are included and there is rational support for the strategies.

One of the highlights of the strategy section is the introduction of the research on Net Payout Yield. High Net Payout Yield appears to be an improvement over high Dividend Yield as a marker for outperforming the market.

4. Last but not least,
- When you are finished screening

Hough is a proponent of further detailed analysis once the screening process is complete rather than a mechanical approach. This is worth understanding no matter what approach you personally follow. Not all the strategies in the book (e.g., New Dogs) require further analysis.

This is one of the few books on investing that goes beyond deciding what to buy and when. It actually discusses when to sell! If you have not spent any time with the idea, this is a great introduction.

This is a keeper. If you can’t borrow it and don’t own it, buy it.

Hough, Jack. Your Next Great Stock: How to Screen the Market for Tomorrow’s Top Performers (John Wiley & Sons, Inc., 2007).

About the author of Your Next Great Stock

Jack Hough writes about stock screening for SmartMoney magazine, SmartMoney.com, and the Wall Street Journal.

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