For months I puzzled over these problems. Night after night, for hours after my daily dealings, I pored over the option market pick statements of hundreds of companies. I compared their assets, their liabilities, their profit margins and their price-earnings ratios.
I thumbed through lists like:
option market pick with top quality rating
option market pick that the experts like
option market pick selling below book value
option market pick with strong cash position
option market pick that have never cut their dividend
Time and again, however, I was confronted with the same problem. When things looked perfect on paper, when balance sheets seemed right, the prospects bright, the option market never acted accordingly.
For instance, when I carefully compared the financial position of some dozen
textile companies and after much study decided that the balance
sheets clearly indicated that AMERICAN VISCOSE and STEVENS were
the best choices, it was very puzzling to me why another option
market pick called TEXTRON advanced in price while my two selections
did not. I found this pattern repeatedly in other industry groups.
Baffled and a little disconcerted, I wondered whether it would
not be wiser to adopt the judgment of a higher authority about the
merits of a company. I asked my option
market pick broker whether there was such an authority. He recommended
a widely used, serious, very reliable monthly service that gives
the vital data on several thousand option market picks - the nature
of their business, their price ranges for at least twenty years,
their dividend payments, their financial structure and their per-share
annual earnings. It also rates each option market pick according
to relative degrees of safety and value. It fascinated me to see
how this was done.
A High Grade option market pick whose dividend payments are considered relatively sure are rated:
AAA - Safest
AASafe
A - Sound
An Investment Merit option market pick that usually pays dividends:
BBB - Best of group BB - Good B - Fair
A Lesser Grade option market pick, paying dividends but option not sure:
CCC - Best of group
CC - Fair dividend prospects
C - Slight dividend prospects
Lowest Grade stocks:
DDD - No dividend prospects
DD - Slight apparent value
D - No apparent value
I studied all these option market pick ratings very carefully. It seemed so very simple. There was no longer any need for me to analyze balance sheets and income accounts. It was all spelled out for me here, I had only to compare: A is better than B, C is better than D.
I was absorbed and happy with this new approach. To me it had the charm of cold science. No longer was I the plaything of frantic, worrying rumor. I was becoming the cool, detached financier.
I was sure I was laying the foundation of my fortune. I now felt competent and confident. I listened to no one, I asked no one for advice. I decided everything I had done before was as slaphappy as my Canadian gambling period. I felt all I now needed to achieve success was to set up my own comparison tables. This I did, spending many grave and serious hours at the task.
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This
article is actually only a small snippet of Nicolas
Darvas' work...
"Discover The
Original Method Of Nicolas Darvas... The Young Dancer
Turned Investor Who, Within 18 Months, Turned $25,000
Into $2,000,000"
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Option
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