What to Look for in Individual Stocks?
- General Long-Term Prospects
- Go through at least 5 years of company’s 10K forms (www.sec.gov or from company’s website)
- Be able to answer questions like: What makes them grow? Where are the profits coming from?
- Look for marathoners, not sprinters
- What’s their “moat” (competitive advantage)?
- What’s their conduct like?
- Are they managers or promoters?
- Can they admit mistakes and move on?
- Financial Strength and Capital Structure
- How is their cash from operations in the past 10 years?
- How is their long-term debt compared with their total capital?
- Dividend Record
- The record of 20+ years of continuous dividend payments shows extreme quality
Annual Stock Returns
- Stock returns vary a lot
- On average stocks lose money 1 out of every 3 or 4 years
- Expect 1 or 2 severe down markets in your investing career