Saturday, 23 April 2011

P Dorsey, J Mansueto - The Five Rules For Successful Stock Investing

Economic Moats (consistent for at least 5 years)
  • FCF/Revenue >5%
  • Net Margins >15%
  • ROE >15%
  • ROA >7%

Growth - instead of just cut cost or one time earning/selling which is not sustainable. Look for sustainable growth
Profitability - ROE, ROA, FCF
Financial Health - gearing, debt to equity, quick/current ratio, interest coverage ratio
Risks/bear - think of negative aspects
Management assessment - compensation(executive pay is linked to company performances), character, efficient operations

10 minutes test
  1. Has the company ever make an operating profit?
  2. Does the company consistently generate cash flow from operation?
  3. Is ROE>10% with reasonable leverage?
  4. Is earnings growth consistent?
  5. How clean is the balance sheet? debt?
  6. Does the film generate FCF?
  7. How many "others" are there?
  8. Has the number of outstanding shares increases markedly over the years?
If the above pass, go into 10 years summary and do a detailed FA. 


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