Thursday, August 26, 2010

Buy rubbish and you stay with rubbish

One frustrating experience you may have is to find that year in and year out, a stock that you have in your portfolio is showing no growth or even negative growth. Its EPS continues to be near zero. The company pays you no dividend and you get nothing. The only thing you can do is to get out. But even this is not easy because there are no scapegoats around. And your funds continue to be tied up with these rubbish shares.

At Bursa, these rubbish shares are aplenty. Check them out, avoid them, and note the names of the directors. Pay special attention to who the CEO is.

They say if you buy rubbish, you stay with rubbish. You may even have to sleep with them. Abhorrence of this nature can be avoided if you are careful whenever you buy a stock.

What are the things you should look at when you buy? First on the list is earnings. A company cannot survive without earnings. Other things to take into consideration are: calibre of management, business model, barrier of entry, sound balance sheet, gearing, cash flow, and dividend yield.

Always remember this quote from Warren Buffett:

Investment is most intelligent when it is most businesslike.