1.Try to invest in the best businesses: - Evidence of growth, I prefer companies that have growing revenue, sales and earnings. I often search for companies which are growing in revenue first (as it is often a leading indicator for growth if costs can be maintained) - Low debt/equity - Good and sustainable profit margins (the higher the better) - A good return on equity (although this is covered by the others above).
2. Get them at a good price - I usually read presos etc. and calculate my own forwards earnings estimate (I do not use analysts estimates) - And use a PE ratio of 10. (For the pedants out there, this is equivalent to valuing a company with a 10% required return and not discounting future cash flows). You have to factor cash and long-term debt when you work out a target price this way. - This tends to give a very conservative number, and if you buy at this price you are doing very well. If an extraordinary market opportunity comes up, I go in and go in hard. Occasionally, will cough up a bit more for exceptionals.
I only ever hold 5-7 stocks, but am heavily concentrated in 2 or 3, which I tend to know inside out and am confident of my valuations.
Whilst I only normally go for cashflow positive companies, I have on numerous times taken up arbitrage opportunities that are essentially risk free. This typically occurs with illiquid options (and have been very very good trades, all very profitable).
My 2c.
BTW- am looking into WIC, I do not understand managed investments very well, and whilst I understand they have a high management expense ratio, why are they trading at a 35% discount to NTA!? If anyone knows I would greatly appreciate.
