Research

To enhance your investment success you need to continuously educate yourself in business and investment strategies. Train yourself in where and how to find potential stocks to invest. There is no single investment style that fits all. You just have to research and have plenty of practice to eventually find a method that fits you best.

How good you are at stock picking depends on how much you know about the business and its economics. The risk and reward is not depended on the stock but on you – how much you really know about the stock you are considering. Look for profitable companies with strong balance sheet and long-term sustainable competitive advantage.

Events worth investigating further for potential investment opportunities:

• More than 10% share price falls in one day. Usually due to a surprise profit warning.
• A company announces expansion of manufacturing capabilities and entering new markets, gearing for growth.
• Ground breaking new products or services where a large market already there to sell.
• Significant directors buying when compare with their personal wealth.
• Fair price acquisition of a solid business with long-term competitive advantage.
• New CEO with good track record brought in to turnaround a previously strong business but was severely weaken by previous incompetence management.
• War, terrorism and health scare usually provide good opportunity to purchase stocks at depressed prices.

Stock Analysis

Successful and long lasting companies tend to be well-managed by humble leaders who treat shareholders as owners and are passionate about their business. These companies usually exhibit some wonderful forms of durable competitive advantage. A corporation with sustainable competitive advantage is more predictable and often can trades on its own terms.

You goal is to identify the main durable competitive advantage of the company you are considering. You can focus on the company’s customers, operations, finances and people for pointers. Look for companies that are unlikely to experience major change and that they are virtually certain to possess enormous competitive strength then or 20 years from now.

A thorough analysis of the company can help you to detect trends and get an overall picture of the risk associated with the business which you’ll need in order to select an appropriate capitalization rate or discount rate in valuing the company. It will also help you to zero-in on the most appropriate valuation method to use.

Stock Valuation

Finding a well-run, consistently profitable and cash generative business is not that all difficult, knowing how much you should be paying for it is often quite challenging.

Market enthusiasm can drive up stock prices to a level that’s well beyond what’s justified by the company’s earnings. That stock is “overpriced” and any slight surprised bad news announced can result in more than 10% share price falls in one day.

Valuation helps to bring the company’s share price back to reality. Certain valuation methods can give you an approximate price you should pay today and an expected annual rate of return during your projected holding period.

Valuation can also give a benchmark for comparing other companies valued by the same method. Periodic valuation of the same company using the same method each time provides a great measure of growth or decline strength or weakness.

Portfolio Management

Successful long-term investors tend to own a concentrated small number of wonderful businesses that they understand well. This concentration makes it easier to track the companies’ progress as they are all operate within the investors’ circle of competence. These money masters belief that an investor’s best strategy is to select an area where they can know significantly more than the average investor and focus their efforts on that area.

Be patience and wait for the right opportunities. Great businesses going on sales are rare, so bet big when they do come along and when you have confidence in them.

Sell some shares to recover your initial capital when the stock price race too far ahead when compare to the company’s economic outlook or when the business’s durable competitive advantage is no longer existed.

Monitor

It is advisable to check the progress of the companies you are holding at least once a year to avoid unpleasant surprises. If you invest in businesses that you understand relatively well this shouldn’t be that difficult.

Areas to focus on:

• Customer services and markets.
• Business operations and cost controls.
• Financial performance and balance sheet strength.
• Management yearly achievements against stated strategic objectives.