High-Return, Low-Risk Investment: Using Stock Selection and Market Timing

When he appears as one of Paul Kangas's Friday market monitors, Robert F. Drach always has a cagey smile like he knows something you don't. He's one of the few analysts (Hilary Kramer is another) on the show who isn't full of bull. Drach manages the Nightly Business Report model portfolio, which beats the major averages, according to the NBR web page. Relative performance since portfolio initiation (5/5/95) This Model Portfolio + 214% Nasdaq Composite + 203% Dow Industrial + 194% S & P 500 + 172% Drach says he doesn't buy any of the stocks he recommends on NBR. Yet that sly smile seems to have money behind it. He compiles a "Master List" of about 100 of the best American stocks, or "A+" stocks as he calls them. Stocks are bought or sold depending on their overvalued/undervalued status. He even times the market by gauging the overvalued/undervalued status of the entire Master List. The method isn't about hitting home runs; it grinds out small steady profits from only a few positions. You don't have to buy all 100 stocks! Nearly every position winds up a winner. If you've done any stock trading, you know the trauma of taking losses, even small ones. Drach all but eliminates that. Woo-hoo! Drach is obviously some kind of financial egghead judging by the chapters in which he lays out the rationale behind his methods. Don't try this at home is the appropriate disclaimer. Save yourself the brain damage and subscribe to his newsletter. When I checked in '05 it was only $100 a year. What a steal for advice from a pioneer analyst. For those of you who like to look under the hood and understand how a thing works, the book is a worthwhile read. Drach writes with the tone of someone who has it all figured out. I can only imagine what that feels like. I haven't even figured out what to have for breakfast. In addition, you get the advice of another financial egghead, Thomas J. Herzfeld, who gives you the lowdown on closed-end funds. Closed-end funds are fertile ground for those who don't want to follow the crowd. Only a few financial nerds even know what they are. Herzfeld, also a Friday market monitor, has been following closed-end funds for 40 years. He might be the world's foremost authority. Unlike Drach, Herzfeld does buy the funds he recommends. With his $625-a-year advisory service, Herzfeld is livin' large. Update: On his December NBR appearance, Herzfeld said right now is "the best opportunity in at least a decade" for closed-end fund traders. On his January 18 appearance, Drach delivered a bullish assessment for stocks in '08. The "A+" stocks are beaten down and poised for a rally. KANGAS: So you're basically telling our viewers, don't panic and stay with high-quality stocks, correct? DRACH (with a sly smile): You want the person you're buying from to panic, but that's what they're doing.

A true "cult classic" among investment books. The authors take the traditional academic and modern portfolio theories of investing and turn them upside down in this straightforward description of how to become a true professional stock trader. The method and logic used are down to earth so that the average aspiring stock investor can utilize the system. For any stock investor truly after high consistent return with low risk, it is the only system you will ever need. The method is as relevant today as when Mr. Drach started his investment research report 30 years ago.

This is an excellent book that is still useful years after publication. I would love to see it back in print so I can buy several more copies.