Every day every investor is presented with hundreds of opportunities to invest in every possible kind of company traded on the US stock markets. And every investing opportunity begs the potential investor to gather as many facts about the business as possible. This process is often referred to as due diligence among investors.
Most successful investors succeed or fail by whether they know “the company's numbers”. Depending on an investor’s depth of knowledge of accounting procedures, this can often get complicated and extensive. For others, this can be a quick look at the important numbers and then making assumptions from there.
I tend to put my initial emphasis on four things - revenues, earnings, dividends, and the dividend payout ratio. If those numbers look good, I dig deeper into current and future P/E ratios, the PEG, the current and future earnings growth rates, dividend growth rates, etc.
I can’t begin to understand a company until I see at least the last 5 years revenues, earnings and dividends. Ten years of information is even better. I tend to drill down and look at growth rates and put more emphasis on the more recent years’ data because older numbers may not accurately reflect the company’s business prospects. For future data I look at brokerage analyst’s projections. I generally look for companies that several analysts are following so I can look at the average projections. I tend to believe that a sample of at least 5 analysts are needed to get a useable average but like data, more is better.
This seems obvious but any investment I enter into I expect it to increase the value of my portfolio. This means that the future projections must be pointing upward. I don’t have a specific increase expectation but instead I use those expected increases for comparison and prioritization.
I also like to read the biographies of the senior management personnel. Hopefully management has extensive experience in the industry that the company operates in, are high achievers, are highly motivated and are honest.
Another item I look at is whether the company has a unique position in the industry. I want to know if the company produces a unique product or service and if there’s a high barrier to entry for other companies. This is often referred to as having “a moat”.
I tend to put my initial emphasis on four things - revenues, earnings, dividends, and the dividend payout ratio. If those numbers look good, I dig deeper into current and future P/E ratios, the PEG, the current and future earnings growth rates, dividend growth rates, etc.
I can’t begin to understand a company until I see at least the last 5 years revenues, earnings and dividends. Ten years of information is even better. I tend to drill down and look at growth rates and put more emphasis on the more recent years’ data because older numbers may not accurately reflect the company’s business prospects. For future data I look at brokerage analyst’s projections. I generally look for companies that several analysts are following so I can look at the average projections. I tend to believe that a sample of at least 5 analysts are needed to get a useable average but like data, more is better.
This seems obvious but any investment I enter into I expect it to increase the value of my portfolio. This means that the future projections must be pointing upward. I don’t have a specific increase expectation but instead I use those expected increases for comparison and prioritization.
I also like to read the biographies of the senior management personnel. Hopefully management has extensive experience in the industry that the company operates in, are high achievers, are highly motivated and are honest.
Another item I look at is whether the company has a unique position in the industry. I want to know if the company produces a unique product or service and if there’s a high barrier to entry for other companies. This is often referred to as having “a moat”.
In the end I need to know how to monetize the investment. I need to know my return on investment and how that return stacks up against other investments. I need to know if that return is a growing dividend or a specific capital gain. And I need to know how and when I'll need to exit the position.
I used to do all of this work in spiral notebooks, and the more extensive research is still done that way. But today I do most of the front end analysis and publish it here on this website. The reason is because this way it'll reside in the cloud and I can then review this information at any time from my desktop, laptop, tablet and smartphone. It’s a tremendous asset.
I used to do all of this work in spiral notebooks, and the more extensive research is still done that way. But today I do most of the front end analysis and publish it here on this website. The reason is because this way it'll reside in the cloud and I can then review this information at any time from my desktop, laptop, tablet and smartphone. It’s a tremendous asset.
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