Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on the fundamentals of successful investing. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away.
Today’s tip: “Investment success depends more on the quality of your investments than on the price you paid for them.”
When you start investing, you may think the secret to investment profit is “buy low, sell high.” But that’s hard to do. You’ll often buy just before prices fall, or sell just before they rise. If you stick to high-quality value stock picks, however, your short-term gains and losses can average out and you’ll still profit greatly in the long run. Here are nine factors to look for when judging a value stock pick’s investment quality.
Financial factors:
5 to 10 year history of profit. Companies that make money regularly are safer than chronic or even occasional money losers.
5 to 10 years of dividends. Companies can fake earnings, but dividends are cash outlays. If you only buy dividend-paying value stock picks, you’ll avoid most frauds.
Manageable debt. When bad times hit, debt-heavy companies go broke first.
Safety factors:
Industry prominence if not dominance. Major companies can influence legislation, industry trends and other business factors to suit themselves. Minor firms, on the other hand, have to take what’s there.
Geographical diversification. Canada-wide is good, multinational better. There’s extra risk in firms confined to one geographical area.
The Profits from Hidden Value
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Canadian Value Stocks:
How to Spot Undervalued Stocks
PLUS! Our Top 4 Value Stocks
Freedom to serve (all) shareholders. High-quality value stock picks must be free of excess regulation, free of dependence on a single customer, and free from self-dealing insiders or parent companies.
Survival/growth factors:
Freedom from business cycles. Demand periodically dries up in “cyclical” businesses, such as resources and manufacturing. That’s why you need to diversify. Invest in utility, finance and consumer stocks, along with resources and manufacturers.
Ability to profit from secular trends: These trends outlast ordinary business booms and busts, because they reflect ongoing social change. Free trade and rising environmentalism are just two examples of secular trends.
Ownership of strong brand names and an impeccable reputation. Customers keep coming back to these businesses, and will try their new products.
Few investments possess all of these factors. But the more you find, the better.
Next Wednesday, August 11, 2010, Investor Toolkit will look at one of the most profitable (and riskiest) investments you can make — starting your own business.
Learn everything you need to know in
'7 Pro Secrets to Value Investing'
FREE Special Report from The Successful Investor.
Canadian Value Stocks:
How to Spot Undervalued Stocks PLUS! Our Top 4 Value Stocks
Get Your FREE Report Now:
7 Pro Secrets to Value Investing
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Legal Notices and Disclaimers
The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
Information presented on this web site or contained in our publications is not an offer, nor a solicitation, to buy or sell any securities referred to on the web site or in the publications. The material is general information intended for recipients who understand the risks associated with an investment in any securities referred to in the publications or on this web site. The Successful Investor has made no determination regarding whether an investment, course of action, or associated risks are suitable for the recipient.
