Following this thread with interest.
OK, so if you wish to go this route and pick your own aus stocks for income, capital growth and growth of income at a rate higher than inflation - do you set yourself some investment rules to narrow down particular stocks from all those listed.
If so - what are your rules and what screening/analysis tools do you use? anybody?
I dont think it is possible for someone just to jump in and pick good stock
it comes with a bit of experience and time in the market...
you got to know which are the good business first...you can do that to a certain extend by filter out return on equity and capital ...something greater than 15% show reasonable business model and required further digging and that will tell you if it is a temporary thing or it inherit in the business model that can generates that sort of return over many cycles...
some people takes the easy road and said its all too hard or I don't have time
or it is too volatile or too risky or it simpler if I just buy the index etc...
but the end result is worth it you end up with a couple of dozen business
that over long period of time will out perform every other asset class, plus juicy dividend why wouldn't people spend the time and perfect the art?
I am sure most successful properties investors don't just buy any properties.
They spent time research the area, the people in that are, how far away from public infrastructure and CBD etc..
The same logic can be applied to the stock market, the more you know about the business the easier for you to work out how it makes its money and its value as a business.
I dont claim to be an expert nor my way is any better than anyone else, I am sure there are many other doing better than myself but this is what I do
I do regular reading (20min here, an hour there whenever I can fit in) on
anything related to business and stock market sometimes it got nothing to do with a particular stock but over time I gain very good knowledge of the market and various industries from that knowledge
I know which business model are better model,
which industries are low return high capital expenditure and never to put a dim in them which industries give you certain protection from competition and which one give you the all weather cash cow come rain, hail or shine.
I then take that and applied to companies I want to invest in and use keys metrics to determine if it pass another test ...these are for existing companies..
(ROE, ROC, Free cash Flow, Profit margin, Balance sheet, cost of capital etc..)
I already know which industries will attract my dollars, so if you are a mining specs or a miners or involve in cynical business or commodities business where you have no pricing power or operate in highly competitive market or a resurrect business due to a private equity involvement and they bailing out etc.. you ain't getting my cash.
the rest I will take a look and they get my capital accordingly..
as you see when I filter that through my exclusion list there aren't many
business on the ASX left to invest in so the list becomes very small.
small but in charge (SMIC) is my theme, I prefer to hold 3 rock solid stocks
than have 10 spread all over the place which half of them don't make the cut.
those that make the cut, it get on my buy list, if I think it is too expensive
it stays there and I still keep a tab on them until such time the market turns
or they stuffed up or sentiment gone down the toilet .... I will make a judgement call on the information I have up until that point whether it is still a buy ...if it is, I buy, I dont care who get in or out or what rumour is flying around or market crash and commentators call doom day.
and stock market is full of entrepreneur and new business wanting to list on the ASX each year...there are dozen of new business listing every year and most I look but I end up not invest in many just reading to accumulate more knowledge and compared business models... I looked at 6 IPO this year I only end up investing large amount in one ...VED ... I like the model, I like the cash flow and its revenue stream.
that the crud of it ... when you have more experience the world is at your feet with the stock market, you can get involve in more exotic stuff like trading, options, warrants to enhance your gain even more.
it is very daunting and complex if you look at everything that the stock market offers but take baby steps at a time, conquer one area before moving to the next
!
