We do not have a fixed source of investments. We 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 operating profit to enterprise value.
- 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
We however know our limits and do not invest in companies we do not understand.
Once we have identified an interesting company we conduct a financial analysis which consists of the following:
- Analise the company using a minimum of five years of financial data
- Work through a check list of more than 20 points which we have put together over many years of reading and practical experience
- Check list allows me to quickly identify where we have to dig deeper into the financial statements of the company
- We focus strongly on cash flow as it is less prone to accounting manipulation and is the real life blood of any company
- We 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
Only once we are satisfied with all of the above do we invest