How to Pick a Right Company / Stock

I had a catch-up chat with Richard Ji, a good friend who shares similar passion and investment characters with me. We had a very broad discussion over the market. One of things impressed me is his investment philosophy – 5Ms: Market Size, Market Share, Margin, Management and Moats (entry barriers).

Inspiring by his thoughts, this diary note summarizes my own philosophy or methodology when picking the investment candidates. I call them as “Four Rights”.

No 1: Right Industry:

Ø  A long lasting industry with growth potentials

Ø  Weak or Anti-Economic Cycle

No 2: Right Company

Ø  Market Power:

ü  Have a market leadership or monopoly position

ü  Stay in a market with enough depth and width

Ø  Growth Power

ü  Pricing power to anti-inflation and past cost pressure

ü  Long term survival capability plus short-term growth catalyst

Ø  Financial Power

ü  Light Asset plus low Capex requirement

ü  Low debt or No debt, but having continuous and positive cash flows

No 3: Right Management

Ø  Someone you want your daughter marry with

ü  Honest, Professional, Diligent

ü  Strategically correct and willing to create shareholder value

Ø  A transparent firm with leadership and good culture

ü  Good and positive things never need to hide

ü  A corporate has its own personality, mainly from its leadership and cutlture

No 4: Right Price

Ø  The least important point

ü  Hard to timing the Lows, but relatively easy to identify a good company

ü  A great firm is able to withstand risks

ü  A growth firm can grow from High P/E to Low P/E

寫於2010年8月28日

香港