The MAGNET Approach

Physician's Money Digest, January15 2004, Volume 11, Issue 1

Magnet Investing

In his book (Next Decade, Inc;2000), Jordan Kimmel,president and portfolio managerat the Magnet InvestingGroup, details the MAGNETstock selection process, whichhe says contains underlyingfundamentals that are important,whether you're buying small, medium,or large cap stocks. That's because thetop-performing stocks, he says, displaycommon characteristics. The term MAGNETis an acronym that describes the followingcharacteristics of the companiesthat should attract investors:

  • M stands for management andmomentum. A quality company musthave outstanding management. In addition,momentum, the relationship of astock's share price to the overall market,must be improving.
  • A is for acceleration of earnings,revenues, and margins. Kimmelsuggests a minimum increaseof 15% in quarterly revenuesand earnings as a solidinvesting benchmark.
  • G stands for growth rate,which must exceed current valuation.Ideally, Kimmel says,when a stock is purchased, the currentmarket valuation of a company, basedon its price-to-earnings ratio, should beone half its growth rate.
  • N is for new product or new management.Often, a new product will createrenewed awareness of a company,and new management signals a changein direction, which could also drawinvestors' attention.
  • E represents an emerging industryor product. Often, this can signal greatinvestment opportunities.
  • T means that timing must be right.In effect, the company is technicallypoised for a large price increase.

The key, Kimmel says, is recognizingthat in today's market there are no sacredcows. That's why careful analysis is criticalin selecting quality investments.

Careful consideration should also begiven to selecting an experiencedwealth advisor who is able to work incollaboration with your other financialadvisors, such as an accountant or estateplanner. "That coordination is the key toa successful investing plan," Moriartysays. "You wouldn't believe how manypeople undervalue that. What we're tryingto identify for each individualinvestor is, for each additional percentagerate of return, how much incrementalrisk or volatility the investor is willingto accept. That's the key, and it's allabout gaining trust with your financialand wealth advisor. It takes a little bit oftime, but it's well worth the investmentin the end."