"Common Stocks And Uncommon Profits" remains one of the best books ever written on stock market investing. It has a very important chapter on what stocks to buy. Ideas mentioned there would add to the arsenal of any serious investor. One can also add these to the investing checklist to make better choices in future. Below is a short summary for future reference:
a. Size of Opportunity - Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years? E.g., Large number of Indian homes do not have toilets. As the economic status of people improve, they will install more and more toilets at home. That represents a huge size of opportunity for a company like Cera Sanitaryware.
b. Innovation/Related Products - Does the management have a determination to continue to develop products or processes that will still further increase total sales potential when the growth potentials of currently attractive product lines have largely been exploited. E.g. Cera Sanitaryware is trying to enter related areas like Faucet ware, Mirrors, Tiles and Air Fresheners. If any of these areas click, they can substantially increase their sale.
c. Effectiveness of R&D - How effective are the company's research and development efforts in relation to its size? Ajanta Pharma is the best example of such effectiveness. Company puts a lot of money on research and the kind of products it is producing is helping them grow their businesses tremendously.
d. Sales Strength - Does the company have an above-average sales organization? This should be directly visible in the kind of sale growth the company is showing.
e. Profit Margin - Does the company have a worthwhile profit margin? this data can directly be tracked from profit and loss account.
f. Profit Margin Improvement - What is the company doing to maintain or improve profit margins? This can be traced by looking at profit and loss account for several years.
g. Labor Relations - Does the company have outstanding labor and personnel relations? New tools like glassdoor may help us in extracting this information.
h. Executive Relations - Does the company have outstanding executive relations? Glassdoor should help us in getting this information.
I. Depth of Management - Does the company have depth to its management?
J. Accounting Standard - How good are the company's cost analysis and accounting controls?
k. Leadership Position - Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
l. Long range outlook on profit - Does the company have a short range or long-range outlook in regards to profits?
m. Equity Dilution - In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?
n. Candidness of Management - Does the management talk freely to investors about its affairs when things are going well but "calm up" when troubles and disappointments occur?
o. Candidness of Management - Does the company have a management of unquestionable integrity?
No comments:
Post a Comment