Fund managers are not interested in ill-liquid, unloved and unpopular stocks even though these stocks are greatly undervalued. It is here that we must find the hidden gems.
Intelligent investing is value investing. Buying great stocks at bargain prices is the best way to get rich. Here are some of the things you must look at when you are looking for great stocks:
- Caliber of Management
Success or failure depends very much on the management. Look not only for capability alone. Capability without reliability, honesty and moral values are worst that incompetence but with sincerity and a heart for the minority.
- Earnings and Cash Flow
Earnings are the live blood of the company; cash flow is the real wealth. Look at earnings per share without the extraordinary one-time gain to be meaningful.
- Prospective earnings
While current earnings are important, prospective earnings are even more so.
People always look forward and think about the future. There is no need to look too far. The next one to two years are what really matter.
4. Services and Products
These must be in demand. They must be able to compete locally and globally.
5. Brand name & useful patents
These are important assets of the company.
6. High–entry barrier
A company with a high-entry barrier is an advantage. Banks, casinos and telecoms are some of the examples.
It is risky to borrow too much. In bad times, companies with high gearing can be in trouble. A company that does not have to borrow is better than one that has to borrow to generate profits, other things being equal.
8. Dividend Policy
A good dividend policy is important to the minority shareholders.
A value investor waits for the market to realize the value of his stocks.