Everyone knows investing in blue chips for the long haul is the way to make money in stocks. The problem is, finding these blue chips isn't as easy as it sounds. Stock valuation is subjective at its very core. The best an investor can hope to do is cut through the noise with some guiding metrics to help lead them to relative safety and potential returns.
John Schwinghamer's book, "Purple Chips" provides a decent way to help newcomers start the process of building a portfolio while learning valuable lessons about long-term shareholder value creation. In this edition of Investing 101, Schwinghamer walks through three steps for finding what he calls "purple chip" stocks. "A purple chip is the royalty of blue-chips stocks," Schwinghamer explains, "That's why we call them purple, because purple is the royal color."
Schwinghamer's three steps for discovering stock royalty are:
1) Smooth Earnings
The sign of a good stable company is steady growth, not explosive moves from quarter to quarter. Schwinghamer suggests looking at a few year's worth of earnings statements to find companies that have been built step by step, not in explosive leaps.
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