I know this is quite vague especially as criteria can change sector to sector and by company size.
What are your general rules of thumb in selecting large cap single stocks?
E.G - At a minimum a potential stock needs to…
Have D/E < X
Growing Revenue by X
Sales Margin of X
Any info would be very useful.
Thanks
i screen for high margin business.maybe 10%+.
look at consistency of earnings to determine the acceptable multiple for p/b, ev/fcf, or ev/ni. this will vary a lot. , high roe can have high p/b. but look at debt. cap ratio can easily vary cuz it affects roe.
the type of business. like you said some sectors should be close to p/b like fiancnials. while others like cash flowing companies might be high cuz they repurchase shares or pay divs. or tech will prolly be higher since it is dependnet on its earnings growth.
ev/fcf and ni is more of a takeover valuation and incorproate impact of debt. basically how long at current earnings and valuation will it take me to buy the co. growth of earnings will also determine the multiple. whether growth high or low, accelerating or decelerating, positive or negative.
i check to see how they did during 07-09. if they lose a lot of money relative to what they made in subsequent years i avoid.
check news and guidance to see if there is growth and if they are doing some major acquisiton or restructuring. i prefer companies that grow organic.
look at the level and timing of liabilities with respect to cash flow. curretn rates their debt is at.
valuaing companies is a lot like valuing people.
for example.
a broke black kid who got into harvard for medicine. would you consider him poor? sure he might take on a lot of debt now and his net worth is super negative, but you know he wouldnt sell his future earnings for 100k.
or what about a sales dude who makes 500k per year in acyclical business but saves nothing and has a net worth of say 100k. what would you pay for his future earnings.
what about a dide that makes 100k per year, but saves 20k, and he also inherited $10m.
or a dude that consistenly increases the amount he saves by 10% per year and currently at 100k.
what about a guy who has a million dollars in bitcoin. but his expenses are about 100k per year.
what about a real estate dude that has grown his net worth by 5m. saves 40k. but has a debt of 10m.
fan fan fan!
Why does it have to be broke black kid?
“what about a guy who has a million dollars in bitcoin. but his expenses are about 100k per year.” What, never.
Rex - I have no clue. I’m awful at this crap. I bought Tesla at $250 the other day cuz I was like holy moly, it’ll obviously bounce right back to the mean.
I was wrong.
the l was a complete typo. a thousand apologies.
so thats the secret to compoundin’ at 40%?
I like to buy stocks when the market cap is below what the equity value is.
The issue with that though is that they typically are in distress or have negative profits. So say they are trading at 70 percent to book. Assuming it even trades to book, you’ll only get that 30 percent upside. Then you’ll have to sell and find another idea. It’s a lot more work. Buffett actually called it cigar butt investing. And was his go through strat at start. The king of that strategy is Walter schloss. Pretty interesting dude. I prefer something that trades around book but has the earning power to increase that book.
I didn’t mean accounting equity.
using the last 10 years of info. as a buy and holder. you only have about a 1% chance of selecting a stock that compounds 40%+ in the next 10 years.
17% chance for a 20%+ cagr.
30% chance for a 15%+ cagr
48% chance for a 10%+ cagr
imo you would have to be trading in and out to achieve those returns. so ud have to be a quantttttt
I’ve found the GARP method to be a quick and dirty metric for value. E.g. Apple at $90/share had a PEG ratio of .8 a few years ago. Hard to control emotional biases though when you’re buying low PEG stocks because they’re often victim to short-term momentum selling.
I invested a bit of money in a stock…jumped like 17% over the weekend which was apparently due to the election results. i literally had no clue. if the other party would have won, it would have been a loss. of course in an interview situation, i will be presenting self attribution bias lol.
I often found picking an industry and then with a little bit of money in a concentrated investment, really getting to see and experience the ups and downs. having a bit of skin in the game makes it a more exciting and you will actively stay focused. over time you will then understand why (ie see above) things move (even more when one company is going up and the other one is going down) as well as learning more about the industry and individual stocks.
as another method, i sometimes scalp IPOs and look into each prospectus where they differentiate between retail and institutional listings: $2 p/share for retail and $2.20 p/share for institutional investors for example. Basically the price would have to drop 10% for me to get a loss and would often increase due to large institutional buyers. I then sell but often never at its highest and with quick selling you lose the CGT benefit.
What market cap companies do you guys research? Trying to get some edge from insights on LC or even MC stocks seems a fools game to me, at least in the long run.