Characteristics of a good business
1. Consistently increasing sales, net profit earnings and cash flow for over past 5 years
A good business always has the greatest ability of generating the revenue and cash for the company.
2. Sustainable competitive advantage
(i) True monopoly, no competitors
For example; Bernas, TM, Genting
(ii) Strong brand, consumer monopoly
For example: Nestle, F&N, Carlsberg
(iii) High barriers to entry, economic of scale
For example: Boeing, Airbus
3. Future growth drivers, 20-30% over time
For example: Mc Donalds' open its outlets to drive for more revenue/ income
4. Conservative debt (Long term debt < 4 times net profit)
It is conservative than merely using debt-equity ratio
5. Return on equity (ROE>15%)
Invest in those company that enjoy a ROE of more than 15%, which also means those investors get RM 0.15 or more for every RM 1 they invested in that company.
6. Healthy cash flow, sales growing > working capital growth
Positive net cash flow with revenue increase over the years, it is to eliminate the chances of manipulation of the company account, such as cut operation cost to get short term gain, sell asset to boost earnings, etc...
7. Management is holding/ buying the stock
It is always common to see those good managements will declare a share buyback or they will buy and hold their own company share because the company is generating consistent revenue over the time.
8. Risk is well managed
The systematic risk is unavoidable or diversified, however a good business is always able to weather the recession because the management has years of experience and expertises in managing the risk, such as hedging on currency or commodity price, depends on nature of business.
9. Calculate intrinsic value
Intrinsic value is the net worth/ value of the company stock, buy the stock only when the stock price is lower than intrinsic value to get undervalue stocks.
How to calculate intrinsic value: Using dividend discount model
Or just download the intrinsic value calculator from here: http://www.mediafire.com/?qb8zo5a25w69030
10. Buy only when stock price is on an uptrend
How to see an uptrend? Using technical indicator moving average, buy the stocks when its 50-days moving average (50-days MA) line is starting to cross over the 150-days moving average (150-days MA) line
*Finally, there is times where release of competitor’s bad news that might affect the share movement of entire industry, but does not impact the fundamental of the company, grab the opportunity.
For example, BP oil spill that pull down the price of entire oil industry, it is a great time to pick up Exxon Mobile.
1. Consistently increasing sales, net profit earnings and cash flow for over past 5 years
A good business always has the greatest ability of generating the revenue and cash for the company.
2. Sustainable competitive advantage
(i) True monopoly, no competitors
For example; Bernas, TM, Genting
(ii) Strong brand, consumer monopoly
For example: Nestle, F&N, Carlsberg
(iii) High barriers to entry, economic of scale
For example: Boeing, Airbus
3. Future growth drivers, 20-30% over time
For example: Mc Donalds' open its outlets to drive for more revenue/ income
4. Conservative debt (Long term debt < 4 times net profit)
It is conservative than merely using debt-equity ratio
5. Return on equity (ROE>15%)
Invest in those company that enjoy a ROE of more than 15%, which also means those investors get RM 0.15 or more for every RM 1 they invested in that company.
6. Healthy cash flow, sales growing > working capital growth
Positive net cash flow with revenue increase over the years, it is to eliminate the chances of manipulation of the company account, such as cut operation cost to get short term gain, sell asset to boost earnings, etc...
7. Management is holding/ buying the stock
It is always common to see those good managements will declare a share buyback or they will buy and hold their own company share because the company is generating consistent revenue over the time.
8. Risk is well managed
The systematic risk is unavoidable or diversified, however a good business is always able to weather the recession because the management has years of experience and expertises in managing the risk, such as hedging on currency or commodity price, depends on nature of business.
9. Calculate intrinsic value
Intrinsic value is the net worth/ value of the company stock, buy the stock only when the stock price is lower than intrinsic value to get undervalue stocks.
How to calculate intrinsic value: Using dividend discount model
Or just download the intrinsic value calculator from here: http://www.mediafire.com/?qb8zo5a25w69030
10. Buy only when stock price is on an uptrend
How to see an uptrend? Using technical indicator moving average, buy the stocks when its 50-days moving average (50-days MA) line is starting to cross over the 150-days moving average (150-days MA) line
The stock price is at an uptrend when the 50-days MA is started to cross over the 200-days MA and slopes upward, while the sell call comes across when 50-days MA is crossing the 200-days MA and the line started to slope downward.
*Finally, there is times where release of competitor’s bad news that might affect the share movement of entire industry, but does not impact the fundamental of the company, grab the opportunity.
For example, BP oil spill that pull down the price of entire oil industry, it is a great time to pick up Exxon Mobile.
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