Saturday, August 4, 2012

Stock radar

Mistakes made:

Hoping for quick turnaround stories.It does happen, but the risk involved might not be worth  it.

Over weight age on penny and speculative stocks. The problem will correct itself in the next 5 years when no more money is plough into such counters even if i do nothing.

Getting stock ideas from forums, investor reports. The focus of reading such reports should be understanding the business, and not what are the flavor of the month.

What should be under my radar:

Companies with long term prospects, would be around in the next decade. With a yield of 5% and assume price does not improve, its still a 50% gain in 10 years.

What are companies with long term prospects:

1) Unshakable leader position - e.g. PSA, SPH, singpost, transport

2) Management stability and execution

3) Near monopoly of market, e.g. Singtel, Singpost, SPH, transport

4) High barrier of entry for competitors. SPH, singpost, SMRT

5) Need no frequent high capital expenditure to grow. PSA, road toll companies, SPH,

6) Has a focus for its core business.

7) Track record. 10 yrs at least

 

Great business need a fair price, what is a fair price?

1) Price during a bear market

2) Solvable barriers /problems

3) Valuation metric, yield >6% fair if all conditions, >7% if just some conditions on business robustness meet. (see above)

4) Projected future growth, taking worst case scenario

5) Understand the business.

 

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