How I Find My Stocks: Step-By-Step Method

Summary

This video script outlines a strategy for savvy stock market investors to identify high-potential opportunities by using key financial ratios and filters. It emphasizes the importance of valuation, return on assets, growth, and reliability, and introduces TIKR.com as a valuable tool for in-depth analysis and research, encouraging independent investment decisions.

Takeaways

• 📈 Stock market investors can't evaluate every company individually, but can use key ratios to narrow down to better opportunities.
• 🏆 An intelligent investor filters out mediocre investments early, similar to how a chess player avoids bad moves.
• 🚀 The speaker suggests a profitable strategy they've used since 2013, implying a personal approach to investing.
• 💡 Investing in a company should consider factors like affordability, shareholder returns, financial stability, growth, experienced management, a competitive moat, and political favorability.
• 🔍 The speaker prioritizes quick-to-check variables to exclude companies that don't meet basic criteria, saving time for more in-depth analysis.
• 💼 Warren Buffett's early investment approach involved extensive research, but today digital tools like TIKR.com simplify this process.
• 🚀 TIKR.com is highlighted as a comprehensive platform for value investors to filter and analyze stocks globally.
• 💰 The first step in the investment strategy is valuation, using metrics like EV/EBIT or P/E to ensure the company is not overpriced.
• 🏦 The speaker prefers EV/EBIT over P/E as it accounts for balance sheet strength, setting a threshold of 15 for initial screening.
• 📊 A high return on assets (RoA) is crucial for a company to generate significant shareholder returns, with a target RoA of 10%.
• 🌱 Historical growth is considered less reliable for predicting future performance, but companies showing consistent growth are favored.
• 🔎 After narrowing down potential investments, the speaker emphasizes the importance of checking the reliability of earnings to avoid one-time successes.
• 🔍 The final step involves a deep dive into company details, using resources like public filings, insider transactions, and more to make informed decisions.
• 🐑 The speaker criticizes herd mentality in investing, advocating for contrarianism and independent research.

Q & A

What is the primary strategy discussed for finding better-than-average investment opportunities?

The primary strategy involves narrowing down the massive number of publicly listed companies by using key ratios to filter out the mediocre ones and focusing on better-than-average opportunities.

What is the initial step in the investment strategy presented in the script?

The initial step is to look at fast-to-check variables first, such as valuation, to exclude companies that do not meet these criteria, thereby saving time and focusing on potential opportunities.

Why is it important to ask 'How much?' when evaluating a stock market company?

It's important because the cost of part-ownership determines whether the investment is a good deal. Just like buying a car, knowing the price is essential to determine if it's a good buy.

What is the preferred metric for filtering companies based on their price according to the script?

The preferred metric is EV/EBIT (Enterprise Value to Earnings Before Interest and Taxes) because it accounts for the company's liabilities and benefits those with strong balance sheets.

Why is Return on Assets (RoA) an important metric in this investment strategy?

RoA is important because it indicates how efficiently a company uses its assets to generate profit. A high RoA suggests a successful business, which is likely to throw off lots of money to shareholders.

What does the script say about historical RoA as an indicator of future performance?

The script suggests that historical RoA is quite a good indicator of future RoA, making it a reliable metric for assessing a company's potential for continued profitability.

What caution does the script offer about using historical growth numbers?

The script cautions that historical growth numbers aren't always reliable indicators of future performance, as companies can face growth limitations or unexpected declines.

What is the purpose of the 'Deep Dive' step in the investment strategy?

The 'Deep Dive' step involves thoroughly evaluating individual companies to ensure that their earnings and other metrics are reliable and not just temporary flukes, thus refining the shortlist of potential investments.

How does the script suggest dealing with companies that have unreliable earnings?

The script suggests excluding companies with unreliable earnings, such as those with fluctuating EBIT, to avoid investing in businesses that may not sustain their financial performance.

What additional criteria can be used to tailor the investment screener to individual beliefs?

Investors can adjust criteria such as EV/EBIT, RoA, and revenue growth thresholds, and add additional filters like debt ratio or current asset ratio to tailor the screener to their specific investment beliefs and risk tolerance.