Wisdom Wise
Stock Selection Points To Note
Core business
The first thing I look at when evaluating a stock to buy is the company's business model. What it does and how it generates profit is important.
In this respect, I will consider the competition of the industry, the quality of its products, barrier of entry, availability of raw materials, as well as the demand and necessity of its products and services.
Calibre of Management
Competency and Integrity counts. Competency without integrity is worse than integrity without competency. Incompetency of the management is the main cause of failure. The only way for you to know the management is to look at its record. A growing revenue, improved earnings and dividend payments year after year are the things to look at.
Balance Sheet (BS)
The BS is an important statement. It tells you what the company has and what it owes others. Once studied, you will know whether the company is solvent or not. An insolvent company is somebody's problem which you shouldn't get involved with.
Current Ratios, Free Cash Flow, Borrowings, Receivables, Payables, Pay-up Capitals, Par Value must all be carefully considered.
Metrics such as EPS, Dividend Yields, Profit Margins, Current Ratio, Debt-equity-ratio, ROCE & Price-to-book Ratio are some important metrics to look at closely. (Refer to Investopedia.com, if you do not understand any of the terms mentioned.)
Income Statement
Quality of earnings must be carefully look at. Not all earnings are the same. The important thing to think about is whether the earnings are sustainable or improved going forward.
Cash Flow Statement
How cash flow in and flow out must be analysed carefully. Looking at the bottom line alone is not enough. You must know the details.
CEO's Statement
The CEO is the most important person in a company. Know who the person is. Failure or success of the company depends on this person rather than on anything else. Besides being competent, the person must have integrity as well.
Dividend Policy
I like companies that have a dividend policy of paying 30% to 50% of its earnings to shareholders. I don't like to share risk without sharing the gains. A company that pays regular dividends in tandem with its earnings is preferable to one that pays no dividend in the name of growth. Bear in mind that the only benefit a minority shareholder has is the dividend.
Major Shareholders
The major shareholders control everything. If, for whatever reasons, you don't like them, avoid the stock. On the other hand, strong major shareholders can do wonder for the company. Next time, when you are about to buy a stock, don't forget to find out who the major shareholders are.
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Discussions
2 people like this. Showing 28 of 28 comments
To me, the ability and consistency of dividend payment is the criterion of utmost importance.
2016-03-12 23:57
you r right CK...if your dividend yield is 6% and you reinvest 100% of your dividend and if the share price does not move up...you are assured a CAGR of 6% then!....:)
2016-03-13 00:02
Dividends and bonus issues are just sweeteners.
The most important thing is that the company must have consistent growth and making better profits, appropriate PE Ratio < 10 and PB ratio < 1.5.
2016-03-13 00:08
everyone's reaction is different.
like a game of poker, it is not about the cards you are dealt with....but about how you play poker.
the recommendations are like the cards you are dealt with, but the final result is how you play your hand.
2016-03-13 00:23
I treasure Rosmah's view-point. I am more defensive. I admit that Rosmah is, at least, a class above me.
Hats off to you, Rosmah.
2016-03-13 00:29
like the game of poker, there are times when people loses big when they are dealt with a pair of aces.
2016-03-13 00:31
Im fine CK...learning a lot last 1 year....
not easy to make money. ...and you?
2016-03-13 00:43
stock market got many kinds of players.
know thyself is probably more important than any other advise.
but I think what they teach you in business schools about diversification is probably the easiest to follow. and most suitable for the public.
2016-03-13 00:47
OTB has a list of 10, 20 stocks.......all are export related stocks....that is not diversification.
2016-03-13 00:49
OTB has a list of 10, 20 stocks.......all are export related stocks....that is not diversification.
that is putting all your eggs in one basket and watching the basket carefully.
but , when you are in profits, you will tend to drop your guard.
2016-03-13 00:53
all unit trusts and all professional fund managers practice diversification.
but if you are remisier cum internet sifu, you can get carried away and go for performance. ...the sort of things all business schools warns you about.
2016-03-13 01:08
moral of the story...you can't trust internet sifus.
you have to know thyself.
internet sifus are just a businessman.
2016-03-13 01:11
The object is to recognize the TREND whose premise is false,
ride that trend, and step off before it is discredited"
I wanted to ride the currency trend until the Dec 2015 results were announced but others started unloading by mid January ahead of me...........in game theory fashion, everyone started discounting backwards.
2016-03-13 01:29
PureBULL . > Mar 13, 2016 01:30 AM | Report Abuse X
WHY don't try to short cut all of the above with this ?
This is the invincible model :
G SOROS - "Economic history is a never-ending series of
episodes based on falsehood and lies, not truths.
It represents the path to big money.
The object is to recognize the TREND whose premise is false,
ride that trend, and step off before it is discredited"
G Soros is an uptrend purebull follower n is advising us to focus on the big money.
Jim Rogers - "Figure out the money and you’ll figure out what’s going on."
Jim Rogers is asking us where is the big money in charts n to find them ourselves.
All stocks that can fly very high for 1 to 2 yrs continuously r momentum FA stocks with scalable biz.
n they must need catalysts to do so.
I learned very well from owner of TOPGLOVE, also my neighbor at TGCR for 10 yrs, his at 33 n 35, my at 36.
LIM always mentioned about tailwinds helping to generate easy bottom lines.
n his stock will fly high like the recent run up because of 2 tailwinds, cheap raw material r. latex n weak rm.
Every cycle, look for current stocks that r on the way to enjoy 1 to 3 tailwinds in their biz.
Start with stock charts 1st. n scan them thru. they must be uptrending of course.
Importantly like what Uncle KYY said, Buy stocks that can make more profits next year than the current year.
Among them analyse its biz model n have a good feel of the biz.
AIRASIA a recovery stock, looks good to me, though am bias to bear side of general mkt mode for now.
Still Awaiting retracement at 156.
13/03/2016 01:22
2016-03-13 02:06
Kudos, Ben Gan. You have your own selection criteria that scrutinize major aspects of a business. Keep it up.
Some people will always see this as being 'complex', 'complicated', or think that you 'can't find anything with this'. Well, I can only encourage them to have a look at Warrent Buffett's 12 tenets when it comes to buying into a business. It might broaden their view a bit.
2016-03-13 02:28
when stocks go up every body talks about tail winds and stock picking skills.
but if you ask the same companies why their shares go down 40%, nobody seems to know.
2016-03-13 03:05
My answer to WHY great winning export stocks r collapsing.
Ex. to a friend who has lots of POHUAT:
It took Tay kim huat 20+ yrs to build POHUAT to listing n priced at 55 sen publicly just 2 yrs ago.
Only 2 yrs forward, POHUAT went to highest of 450 sen cum all.
who is smarter to make money , the original owner/bizman or smart money ?
The beauty of stock mkt is designed for smart money to take profits. If not they will be fool in the greater fool game.
All good things that fly up will have to come down at certain maturity pt. many people in the game r not prepared for this. Pls refer to the high 'mountains' in the charts for inspiration n clarity.
After having so good times of long 2+ yrs, That explains why many momentum FA stocks r having bad times. Now they r weak. At best hope for good rebound n consolidation phase will take over. unlikely they can go near their last high pts.
There is also a different result between stocks play by high net worth individuals n fund co.
2016-03-13 04:07
I don't think any of the export stocks CEO will agree with you as they didn't see any deterioration in their performance.
2016-03-13 04:38
The point is.....everyone jumps on a trend.
The idea is to jump off at the right time but humans being humans will buy more and more as they gain confidence and so forgot to dismount from the tiger.
2016-03-13 04:41
investors should look for leaders in industries where prices are stable or falling, but consumption is rising.
Financial analysis is important.......but i3 members are misled into spending not enough time on market analysis and strategic issues.
2016-03-13 04:59
I3 members have not been well served because I have not been impressed by any i3 situ.
2016-03-13 05:25
Good morning, Probability.
To me also, it is never easy to make profit in the equity market.
Some analysts were already showing interest in plantation stocks, foretelling that CPO could fast approaching the RM2,650+ level.
If this prediction or early trend detection is not-too-far off target, I might buy more shares of Kim Loong Resources Bhd which is both a cash-rich and quite a high dividend yield mid-cap plantation stock.
2016-03-13 07:26
I am a disciple of the late Mr.Deng xiapeng.Any counter could let me make money,is a good counter.
2016-03-13 12:03
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There are quite many listed companies which fail to meet these criteria of stock selection. The likes of Utusan, KUB and etc.
2016-03-12 23:54