George Nicholson and the other founders of the National Association of Investors Corporation (NAIC) gave the world a priceless legacy. The single most important contribution they made to our world was to explode the myth that investing needed to be complicated and beyond the ability of the average individual to master it. A half-century later, there is a real danger that this gift might be buried in technology and lost to us.

Fundamental analysis—the reign of Benjamin Graham and a burgeoning string of his disciples—recognized that the long-term ownership of good quality companies rather than speculation on their stock was the only legitimate way one could count on earning money with one’s money.

The art of identifying and analyzing such companies became the life’s work of a succession of bright financial wizards. Each learned from the others before them; and each added his or her notions of what new data, calculations, ratios and other derived metrics might contribute to the practice. The result is that, today, just about every book you can find on fundamental analysis adds to the confusion and contributes to the mystique, convincing the average investor that it’s well beyond any but a financial genius to be able to effectively study a company.

None of the books I’ve read offers a clear cut means of making a decision. Each relies upon nested criteria: “If this is so, then it’s good…provided that is also so and this isn’t.” No one seems to be willing to go out on a limb and be decisive. It’s no wonder that the average person with a computer in his home or office is lured by the colorful graphs that appear on the screen, and the clear cut, yes/no decision-making “gates” offered by Technical Analysis. At least there they can find a “buy” or “don’t buy” process they can mindlessly adhere to—even though it doesn’t work.

But the gift NAIC’s founders gave us was a very clear decision making process. The favor they did for us was to strip away from fundamental analysis the things we don’t need to know. They made a clear distinction between the results management achieves, which we need to understand and examine, and those things that a management needs to employ to produce those results.

In a nutshell, the founders said:

*A company is a good candidate for investment if its management is capable of producing a solid history of steady and strong sales and earnings growth.

*If the management of such a company demonstrates it can consistently retain a steady or increasing profit from its revenues, its track record is likely to continue.

*In the long term, the price of a share of stock is tied to a company’s earnings hence, if earnings grow so will the price of that company’s stock.

*If you buy a good company’s stock when the ratio of its price to its earnings is at or below its historical average, you can expect the value of your investment to grow at or above the rate of its earnings growth.

*If the average annual earnings growth of the companies you invest in is fifteen percent or more, you can double your money every five years by holding on to those companies so long as that growth continues, and replacing them when it doesn’t.

*No matter how careful you are, one out of five companies you select will disappoint you and one will exceed your expectations.

This set of statements is elegant in its simplicity. Where in any of this do we find any need to explore how management accomplishes these feats? We need only to see that they do!