I do not have a fixed source of investments. I try to remain as open as possible to new ideas.
In the past my ideas have come from:
- The screening of stock markets world-wide using time tested investing criteria such as low price to earnings, high return on equity, low debt and low price to book ratios.
- Interesting companies read about in books, magazines or internet
- Unusual companies mentioned by family and friends
- Following investments of fund managers we admire
- Discussions with fellow investors and newsletter readers
I however know my limits and do not invest in companies we do not understand.
Once I have identified an interesting company we conduct a financial analysis which consists of the following:
- I analise the company using a minimum of seven years of financial data
- I work through a check list of more than 75 points which we have put together over many years of reading and practical experience
- The check list allows me to quickly identify where we have to dig deeper into the financial statements of the company
- I focus strongly on cash flows as they are less prone to accounting manipulation and is the real life blood of any company
- I avoid companies with high levels of debt preferring companies that are not capital or asset intensive that generates a lot of free cash flow
- Should a company pass our checklist we read through the annual, interim and quarterly financial reports to get to know the management and the business of the company
Once I am satisfied with all of the above do I invest
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