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10 Oct | My New Investment Philosophy Part V

This post is a follow on from the My New Investment Philosophy, My New Investment Philosophy Part II, My New Investment Philosophy Part III and My New Investment Philosophy Part IV posts I wrote last week and earlier this week.

So with our returned set of companies in hand (matching all of our carefully selected criteria), it’s time to get our hands dirty with some company specifics.

Like a kid in a candy shop I don’t start at the top of the list, rather race towards a company whose broad overview or industry I like the sound of. I mean, who doesn’t want the numbers to stack up when they’re looking at a company that shoots rockets into outer space? Am I right?

I’ll start by checking out their company website – there’s a lot that can be said about a company’s PR ability within minutes of hitting up their website. You’ll be suprised how many times you’ll stumble across pages that don’t display properly, busted links and design from the nineties (complete with man digging, under construction pages). Okay, maybe there’s no man digging, but you get the point. Some big black flags can be raised almost immediately when confronted with a dodgy company website.

I’ll have a little dig around in recent annual reports and sift through balance sheets, P&L and cash flow statements, keeping a careful eye out for anything that looks a little out-of-the-ordinary. Now I’m not a huge numbers man – as regular visitors have probably guessed – and hopefully my screening process has taken care of some the potential big issues, but it’s good to spend a little time acquainting yourself with the numbers. I’ll try to read up a little on the people running the show too, see if I like the cut of their jib. I’ll also try and ascertain whether they have a history with solid, well-performing companies.

I’ll look up any recent broker reviews (though I tend to take these with a grain of salt) and director dealings (I take these a little more seriously, though it’s worth keeping in mind that there are times when directors need to sell up for no other reason than to free up a little cash).

I’ll look at the industry and where the company sits within the industry and what challenges and opportunities that industry faces in the coming months and years. I’ll also check out any major competition.

I’ll check in with my usual online hangouts, tip sheets and investment blogs to see if anyone – who’s opinion I value – has had anything to say about the company in question. Hell, I’ll even slide a skeptical eye over the bulletin boards and see if there are any disgruntled holders or any gossip that’s worth a bit more of a dig. I’m looking for calm, reasoned contributions. It’s a bonus if I can find a BB poster whose opinion I value (there’s a handful I follow) sharing their thoughts.

I’ll check out the charts looking for nice steady mid to long-term upward trends. If I’m getting close to investing I’ll be particularly mindful of any recent levels of resistance or support so as to try to time my entry when support has been bounced off, or resistance smashed through.

And at the end of the day, I really have to like a company – it’s almost like an unquantifiable criteria – before I’ll invest. Not necessarily what it does (although I have my boundaries there too) but how it goes about things. It’s probably more down to the way they’re presented, how they report, their professionalism, do they answer your emails, that sort of thing.

Anyway, I’ve prattled on long enough.

As I’ve mentioned repeatedly throughout the previous four parts of this little exercise, the criteria I spoke of in parts III and IV, should not be your criteria. By all means use them as a jumping off point, but for example if you are say, a little more risk averse then I am (it’s not hard), you may want to considerably up the Market Cap values you plug in, in order to return some larger, more mature companies. There’s a million and one other ratios and criteria out there too which may better suit your screening needs. You get the idea.

So now, say you get a red hot tip from a friend who’s opinion you trust. Instead of just jumping headlong into the fire throwing cash at a company that sounds good, you’ve got your trusty criteria to fall back on. Manually check the company against your criteria and even if it doesn’t check each box, at least you can get a feel for whether for the most part, it’s a company that sits well with your own investment philosophy.

So thanks for joining me as I’ve spouted on about where I think my investment philosophy is at today. It’s been an exercise that has allowed a little self-discovery. No doubt there’ll be changes again tomorrow but sometimes it’s good to take a step back and define what you’re trying to achieve and how you’re going about it.

Just remember, as an investor I make a pretty decent web developer so always fish around for quality sources of information. They’re out there.

Thanks again for dropping by.