Back to Basics - Stock Investment

The purpose of putting these simple steps is to facilitate my next task – an overview and easy reference for my son to begin his stock investment journey next year. Obviously there are many books, videos, articles, etc on various topics of stock investment from valuations, methodology, behavioural finance to analysis skills, etc. But these simple steps I intend to show him will form a basic overview on the investment process.

1. Searching for investable companies
2. A 1^st and foremost question – only if I can understand the businesses they are in and the business still has potential in the future.
3. Perform quick analysis on key statistic to determine if they are investable
4. If yes, try to perform simple valuation to determine what is the intrinsic value
5. Compare to current price if there is sufficient margin of safety
6. Try to identify if there is potential catalyst to trigger price moving towards intrinsic value
7. Set the amount for this investment
8. Take a quick look at the technical chart. Hold on to buy action if there is unusual price and volume activity observed. Check for possible reasons.
9. Action on the purchase depending on market sentiment – bearish, buy in stages. Bullish – may have to buy at one shot.
10. Read announcement/news on this company or regulations etc that may have effect on the company– sell should be triggered when sell conditions are present

Check list ( No 1 is a must, not tolerable while others are more discretionary as they can be compensated by qualitative factors that may not be quantifiable eg monopoly, special license, patent, etc)

1. Management integrity intact (try to check if there is any integrity issue in the past)
2. Sufficient margin of safety (>25%)
3. Reasonable ROIC (>12%), ROE(>10%) and low PE (<10)
4. Profitable, Not overly geared (<30% gearing level) with healthy free cash flow over the last 1 year
5. Not sun set industry or Industry not in down cycle, preferably in growing industry
6. Preferably with dividend record
   Qualitative factors need to be considered together to determine if the company concerned is indeed an excellent candidate.  

	Check List	Yes/ No
1	Management integrity intact
2	Sufficient MOS
3	Reasonable ROIC, ROE and low PE
4	Profitable, Free Cash Flow & low debt
5	Not sun set industry or in down cycle industry
6	Dividend track record