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Why you should have a declarative sentence



February 05, 2007 – Comments (1)

'Morning all,

Unlike my more efficient colleagues, I find it easy to get overwhelmed by a tight writing schedule, email, and the demands of the discussion boards. So, to make life easier, I'm going to consolidate the big questions I get in my inbox into my blog. Perhaps that way I'll keep my sanity. And if I don't, well, nobody can say I didn't try.

Today's issue is a follow-up from my last post and in answer to everyone who writes me asking questions like this:

"Hey, what do you think of Cement Shoes Corp.? Is this a growth stock worth investing in?"

My answer, of course, is maybe. It all depends on how well the investing thesis can be explained in a declarative sentence, such as: "Cement Shoes Corp. is the exclusive supplier of bottom-feeding soles for the $1 billion protection racket -- I mean, market."

Why bother? Because great growth investors need to know what they're buying and why. Take legendary VC Sequoia Capital. Its partners use this trick to keep from betting on irrelevant firms. And they've been right a lot more than they've been wrong. Apple, Cisco, Oracle, Google, and YouTube were all at least partially funded by Sequoia.

So try it. Take any stock from your portfolio. Then, without researching further, write a short sentence -- 20 words, tops -- that explains what you own, and why you own it. You might be surprised by what you learn.

Till next time, Foolish best.

1 Comments – Post Your Own

#1) On February 06, 2007 at 9:51 PM, TMFLomax (89.45) wrote:

Hey Tim -- I am one of your more inefficient colleagues, I think. ;)

I really like the idea of this exercise. A quick and succinct way to assess whether a company is worth spending research time (and of course money) on.


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