I thought of penning down my rules for making a stock investment. Over the past year or two this has been revised and here's what it stands as currently:
1.
I am an investor and not a speculator. I am not
as brave as the other people who are trying to get rich overnight.. I like to
have a BIG margin of safety (bigger the better).. if I don’t think I am getting
a $1 bill for 50-60 cent. I am happy to wait.
2.
I am a patient man. As long as fundamentals are
good; I have no issues in holding the stock I invested in (as long as I have a dividend
yield of 2.5% or higher and hopefully growing YoY).
3.
I like the Rip Van Winkle theory. If I can’t
visualize that the company stays in 10 – 20 years.. I would be wary of buying
the stock.
4.
I respect market cycles. I can’t and don’t
predict the future. I just prepare for it.
5.
I am crazy about capital preservation. First of
all – I am worried about return of my money than return on my
money.
6.
I like my companies to grow at a decent pace –
10% YoY (sales growth) operating at a decent margin (varies by industry), with
a ROE 20%+ employing either no debt or very low debt.
7.
I like monopolies that exist in very favorable
circumstances. As long as the government does not try to lick into the
honey-pot. Or – in private industries as long as the management stays honest.
8.
I want to concentrate on setting individual
targets for the stocks I hold. I like absolute numbers. My favorite growth
number is 26%. I have no interest in what the sensex or the index as a whole is
doing. And I don’t really care as well.
9.
I like to get dividends. My thumb rule is 2.5%
to start off when I invest and a nice 10% YoY dividend growth.
10.
I like to hold 10% of my wealth in cash. I am
not clever enough to find a place to park all my cash. I never know when
I will need it.
11.
I like to read. I want to read all the annual
reports of my stocks. I may not understand everything that gets written in the
reports (I am not a mind reader); but I like annual reports that don’t
excessively use magic words.. Vision,
mission, culture, commitment, system, integration, globalization (these are
just a few.. you know what I mean, don’t you?).
12.
I like 26% for a reason. It’s a neat number –
you double your money every 3 years and you grow 10 times every 10 years. A
million grows into a billion in 30 years..
13.
I usually don’t like to sell my stocks. If they
continue to grow 10% YoY and have 20%+ ROE and has a sensible management in
place.
14.
I like sensible management. I don’t like it if
the management salaries are excessive. Especially if they grow over 5% of
profit the company makes. I also don’t like heroes – I like honest, simple and
motivated people to run my company.
15.
My company. Yes, I like to call all companies where
I hold stocks as ‘my’ company. I like to see myself as a part owner of
the company. I am terribly angry if someone dilutes me.. I like companies that
don’t dilute me.. better still if they reduce outstanding share count.
16.
I like to look at a long history.. usually 10
years. I like companies which know what they are selling. And stick to it. Not
go after growth for the sake of it. I get mad if good money is spent after bad.
Decent retained earnings are key.
17. Finally, if my companies have more money than they need – I am
happy to have more dividends coming in.
Ciao till next time...Harsha
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