Category: Investing resources

Finding Stocks with Earnings Power for Long-Term Profits

One size doesn’t fit all is often said for investments. However Hewitt Heiserman has written a remarkable book that gives you a blueprint for finding great growth stocks for the next decade without taking on a lot of risk in the process. His method can be applied to all types of companies.

According to the book there are three key factors which drive long term profits for a successful investment

a. Competitive advantages enjoyed by the firm or what Warren Buffet calls Moats that keep rivals at bay. The book doesn’t provide any tool to determine competitive advantage however it provides a quick check-list to ascertain if a firm is enjoying competitive advantage. You can read our recently posted article on understanding competitive advantage to gain more insights

b. Valuations – Great companies can become lousy investments if brought at wrong price, the book again has little on valuation front. Use our stock price calculator to get first-hand view of value of stock

c. Earnings power – Whether a company possesses authentic earnings power for long-term growth, The 2 earnings power ratios you need to calculate before making your next investment. The Enterprising EPS and Defensive EPS.

The first is … Read the rest

How to select stocks like Peter Lynch ?

Peter Lynch  deserves a place in the hall of fame with his average returns of 25+% per year during his 13 years tenure at Fidelity Magellan Fund.  In one phrase his investment style can be summed as “buy what you know” Although it is very difficult to quantify his philosophy as a rule of thumb, however after reading his classic best selling book ” One up on wall street”  reader do get an insight into his stock selection method. Putting together 5 key tenets below

1. High growth – Earnings drive prices, companies growing fast have to be bought to make inflation beating long term returns on invested capital. Lynch always liked high growth companies however he was wary of very high growth companies as their could be earnings manipulation, he avoided companies growing at 40%+

2.  Price earnings growth – The price/earnings to growth (PEG) ratio is used to determine a stock’s value while taking the company’s earnings growth into account, and is considered to provide a more complete picture than the P/E ratio. Lynch considered stocks quoting at PEG < 1 as attractive, they fitted well in his theory of growth available at reasonable prices (GARP)

3. Low … Read the rest

How to really use expert advise ?

If you read Sheena Iyengar’s fantastic book “The Art of Choosing”  you will understand that in areas where we don’t have expertise we should seek advise to make decisions. Given that financial literacy in not taught in schools and most of the people pick investments like clothes, investing definitely fits the above bill.

But a lot of times financial experts have ulterior motives read earning cut from brokerage houses and almost no accountability for their public predictions. Add to that asset prices change daily and plethora of information is dished on our table, we just can’t keep track of how experts have fared.

Warren Buffet said “Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway”

Is all expert advise on financial investments garbage ? – No

They are experts and they can read financial information and make sense of it, however as I noted above they have keep to making predictions to make sure trader keeps buying or selling so that brokers continue to make money. It is a vicious cycle.  There is a concept that quality of your predictions go down when … Read the rest

The ten pointer Investment map for smart Investor

Here is a simple guide to Investments – One page flyer – yes you got it right – A one page Investment guide. Why one pager?

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A.      As most of complex things in life are actually simple 🙂
B.      I doubt if had put 15 pages voluminous summary anyone bother to read … Whaap!!
Here you go > the below  process is how a normal investor should add an equity stock to his kitty – with help of a 10 point check list.
10 point
10 point checklist helps to identify a stock and add it to our qualifying list, now what is a qualifying list ? it is a list of securities identified which have potential to become investments after due diligence.
… Read the rest