Chapter 1 – Star Search
I was fortunate to be one of the first research analysts to identify Starbucks Coffee as a huge opportunity following its IPO in 1992, when its market cap (share price multiplied by number of shares outstanding) was $220 million. Today, its market cap is $23 billion.
Chapter 2 – The Power of Growth
Since my philosophy is that earnings growth is what drives stock price over time, it seems that the simple solution would be to find companies with high earnings growth and hang on for the ride. While that's true, investing in high-growth enterprises is even better than that due to the way compound interest works. Understanding the magic of compound interest and the power of earnings is critical to appreciating why growth investing has such huge potential rewards.
Chapter 3 – The Argument
If you were to look at the leading US industries in 1925, you would have found that 23 of the 100 largest-capitalization companies were in the railroad industry. Ten were automobile companies, and four were in metals and mining. None of the 100 largest companies were in information technology, healthcare, or financial services.
Chapter 4 – Identifying and Evaluating the Stars of Tomorrow
One of the most bizarre realities of Wall Street is the generally random process security analysts use to evaluate investment opportunities. I was an analyst at Lehman brothers when it had the number-one-ranked research department on Wall Street. I was director of global growth research at Merrill Lynch when it was ranked number one. I was director of global growth research and strategy at Montgomery Securities when that firm did better research than the other two top-ranked firms. And at all three places, the instructions were essentially the same: "Here's a laptop. This is your industry. Go write research and recommend companies."
Chapter 5 – Megatrends
In essence, Megatrends are powerful technological, economic and social forces that develop from a groundswell (early adoption), move into the mainstream (mass market), and disrupt the status quo (mature market), driving change, productivity , and ultimately growth opportunities for companies, industries and entire economies.
Chapter 6 – The 4Ps
Investing professionals often try to make investing sound complicated, but I've found that the better investors make complicated ideas seem simple. Warren Buffett, whose annual Berkshire Hathaway reports are a must-read for any investor, explains investing so it's understandable. Peter Lynch has talked about being able to explain an investment so a sixth grader could understand.
Chapter 7 – Valuation Methodology
So far, I have spent most of the book evangelizing growth philosophy and providing a methodology on how to spot tomorrow's winners. I have wasted little ink on how to value a growth company even though, for many investors, that's the whole exercise.
Chapter 8 – Sources and Resources
So we have a philosophy — earnings growth drives stock price. We have some core principles to guide our investment process — The 10 Commandments. We have a framework for looking at industries that are benefiting from secular tailwinds — Megatrend analysis. We have a discipline for analyzing the core fundamentals of a great growth company — The 4Ps. We have a valuation methodology that gives us a perspective on the relative value of a company — P/E to growth and P/S versus margins and growth. But we still need ideas to funnel into our process.
Chapter 9 – ThinkTomorrow, Today
Thus far, we've spent most of our time in this book creating a timeless framework to identify and invest in the stars of tomorrow. In this chapter I use this framework to identify 16 investment areas that investors should look at to find tomorrow's huge winners. Undoubtedly, the shelf life for some of these areas will be short and my ideas in hindsight may seem silly, but that is the nature of growth investing. And creating these forward-looking scenarios or themes is a critical step in spotting future winners.