Excellent Guide to Find and Select Best Companies to Invest

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Here is my own, and very own  “Personal investment strategy” using to  evaluate the stocks and investment decisions. This is an excellent starting point to understand the major points to find and select best companies to invest in the stock market!

Excellent guide to find and select best companies to invest

This  framework helping me to refer and take critical stock investment decisions. I am following this framework for long time to find best stocks and invest in stock market.

This framework is  more than 10 years old by its power is beyond the time limit.

It is a valuable treasure for investors. It is difficult to find such personal investing framework because no one will be interested to share such to others.

Even, I have kept this information as personal for long time without sharing to anyone.

This article discussing 3 major factors to consider a stock to find the best companies to invest:

  • The Business factors
  • Management factors
  • Financial factors

MY PROMISE: Selecting and investing in stocks as per these factors would lead you to take right decisions on right time.

Please note, lots of homework required to evaluate any stocks as per these points.

Business Factors in Investing

1.    Business that you are willing to invest should be an understandable one. It’s product or services should have durable competitive advantage (low cost and high quality) against its competitors in market..

Products or services have market monopolistic position is excellent. 

2.    Shouldn’t operate in any price compevtitive commodity business with lots of competitors.

3.    Company should have considerable market capitalization and the operating space should be mainstream and not territorial,

4.  Business should not be from any hot or fast booming sectors.

5.  Company should not operate in any sectors that have “organized labor force”. i.e.  Airlines, shipping etc..

6.  Business should not have labor issues.

7.    Should have at least 10 years successful operating history in the market and capable to retain business superiority for further years by not spending much retained earnings for tremendous business growth.

8.    Business, whether it have durable competitive advantage or not, should NOT have any lose making sister company. Acquisition decision of a lose making business is truly bad. However, Acquiring another companies with its products have durable competitive advantage is fantastic.

9.  Also, the business should not be a regular acquirer of other businesses by using its retained earnings and/or through applying loan/debt.

10.    Business shouldn’t have immediate competitors with similar products or services to take advantage from any temporary business crisis.

11.    Business should have excellent sales network across the nation preferably internationally, excellent and cost effective research facility, efficient advertising plans and capable costing management.

12.    Business shouldn’t face any serious legal cases (which affect business economics), from  authorities i.e. tax departments, local or other governments, countries, courts, other companies etc..

13.  Its product or services shouldn’t have a present or past history of experiencing ban from any local or international authorities.

14.    Business should have clean images with exchange authorities and should not have experienced any kind of loan denial from any financial organization in the country or internationally.

15.    Business should have its products or services capable to adjust prices based on inflation/recession, but without losing customers.

Management factors in investing

16.    Business should have a perfect management in place who works for shareholders than self benefits.

17.   Management should be highly rational and dedicated with clean images. 

18.  Management should enough capable to act in advance to retain business superiority on changing market conditions.  This would prevent possible competitor existence with similar products. (e.g. Britannia came with 2 pieces biscuit sachets during economic recession)

19.    Management must be investor friendly and must fulfill every promise they have made to investor.

20.    Management should not support extravaganza. Executives should not be a member in any groups or clubs for high paying executives. 

21.    Management shouldn’t have a history of business, finance, tax and costing fraudulence.

Financial factors in investing

22.    Business should have high profit margin along with high inventory turnover. 

23.    Should have posted considerable and consistent growth on Return on Equity (RoE), Return on Capital Employed (RoCE) and Per Share Earnings for past 10 years.

24.    Business should have posted consistent growth in sales, net profits for the last 10 years including present year. In case of any variation in any of these numbers, it should be justifiable with required evidence.

25    Debt to Equity ratio of the company should be in a comfortable position and the total debt, if any, should be less than net profits of the company. Consider the debt status for preceding and current years.

Banks and financial institutions have conditional exemption from it.

26.    Free cash flow of the business should always positive in each year and business should not have a habit of spending considerable amount to grow business, quality of products, research activities etc.

27.    Should have a consistent dividend pay-out history that grow year to year.

28.    Buying back shares from the market is a good sign, but issuing new shares to the market is not.

How to choose the best companies to invest is an idea to create your own investment strategy or investing framework that later help you to do successful investments