Finding Good Companies to Invest..Part 2

As a continuation from my previous post...

Once i find the companies that fit the first set of criteria, its time to dig deep into the company inside. the step is to evaluate if the company is run well or is it making profit and decide if it is worthy investment. To understand this i use the following criteria
1. Does the company has growing sales for the last 10 years?
2. Does the company has increasing net profit? Has the profit increased over the last 10 years?
3. How much debt does the company have? The lower the debt the better.
4. Is the company issuing new shares or repurchasing their shares? Companies repurchasing shares seems to provide more value to the stockholders
5. Can the company generate free cash flow? Do they have a positive free cash flow for the past 10 years?
6. If issuing dividends, is the dividend increase been consistent?

I understand that, while evaluating financials for last 10 years, we might have a dip or two that resulted from the recession. I try to see the overall result in 10 years, and don't worry much about one or two years of loss.

These set of criteria provide me with the list of good companies and any good company is not worth an infinite price. So the next set of evaluation is to understand if "Mr.Market's" price is work paying for the company. I really enjoyed Graham's version of Mr' Market and how he is there to just serve you and how we should not get worried about his daily mood swings. We just have to patiently wait for Mr. Market to come to us with a reasonable price. So the major question is how do we come up with a reasonable price? Following are set of ideas to evaluate the reasonable price of the companies.

1. Perform a discounted free cash flow analysis to see how much the company is worth in future
2. Project the book value of share to future (and dividends) and then calculate the present value of the book value 10 years from now.

Finding Good Companies to Invest

I have been reading a bunch of books about different investing principles from Graham, Perter Lynch, to articles from David Garner of Fool.com. Everyone has their own style and philosophies about investing. One thing that remained common in every one's investing principle is..believe in what you do and be rational about it. Meaning do not back of or have doubt in your decisions and stick to the decisions for a good amount of time.

I have made numerous mistakes while learning about market and companies. I have invested in speculative companies and even bankrupt penny stocks after reading some post in the Internet. It eventually turned out to be a good education for me. It helped shape my view of companies and other scams that go on.

So after while i thought of defining my investing philosophies and sticking with that. I started to follow a tiered process for looking and evaluating business

Following are my guidelines to identify the businesses that i might be interested in owning.
1. Do i know the company and its products? if not can i learn about them quickly
2. Does the company has a business or product that i use? if not, do i at least understand it
3. Does it have a fan following or loyal customers?
4. Do i know employees from the company and are they happy?
5. Does the company have some kind of dominance or market share?
6. Can i reasonably picture the company 10 years from now and see what they will be doing?

After a Long Time

Its been a long time since i logged in to this blogger. Today for some reason i came across this site and thought..hmm..what happened? why didn't i log in? or write something about random stuff. I  started this blog, used it for 3 or 4 days and forgotten it.

May be i found some better ways to kill time or get more productive. 

Recently, well about 2 years back, i got more interested in the stock market and the workings of different companies. Analyzing different companies , basically understanding their business, fascinated me and it became an interest.  I used to love watching movies, playing video games and reading books. Lately i haven't played any video games, but stated to read more about different companies. This became my new hobby!!

IKE

Hmmm...........what can i say about IKE..it was a completely new experience for me to experience 80mph winds. I was completely enjoying the wind, the rain, the lone time till the aftermath hit me. I lost power and water and then realized how addicted we have become to power. Without power i couldn't do anything, no cooking, no gas to drive around, no restaurants, no phone, no TV, no mac. It was a different experience then the hurricane. I survived without these for 2 days on bread but couldn't carry on. That is when i called time out and drove to Austin. So happy to see cooked food and very happy to get myself cleaned again.

After a week in Austin came back to Houston last sunday...glad to have power back. Though Houston has undergone a major transformation, this is when i realized what a hurricane can do to a city. Man kind is brave and always strive for survival, so i felt things will return back to normal soon, as i am already seeing the progress...

Wasted

It always feels nice to just lie around and do nothing. This weekend is a perfect example for that. HBO offered free preview this weekend and i am utilizing it to the most. Lying around and watching HBO in HD feels great, especially after a very busy week of work....

Lets see what next week can bring in......

The Begining

Today out of blue i thought of starting to blog and try to get my thoughts jolted down. Lets see how this work.

This being long weekend, i drove to Austin, TX to meet up with some friends and kill time. Its been fun and very productive so far. This being my long drive after i got my car back...i was exited about this. As Gustavo approaching in one side, i saw the evacuation plan going to work on my way. Pretty impressive i have to say.