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Rule Number 1 for Investing

I picked up this CD set from the library. I didn’t expect an excellent literature – there were a lot of investing methods on the market and most of them were just average. However I was surprised by the author Phil Town – his investment method was very scientific. And it was a good complement reading of Warrent Buffet’s investment. As Warren Buffett said, ”’Rule number 1 for investing is don’t lose money”’.

Here are four main criteria for investing in a company’s stock:

  1. Meaning. The company should means something to you as an investor. Translation, you should know the company. You can draw on your experience from three circles:
    1. Things you are good at
    2. Things you earn/spend money on
    3. Things you are passion about
  2. Moat. The company should have high barrier to entry. If the company has a wide moot, the four ratios below should be at least 10% or above:
    1. Return of Investment Capital (ROIC)
    2. Sales Growth Rate
    3. Earning Per Share Growth Rate (EPS)
    4. Book Value or Equity per share (BVPS) Growth Rate
    5. Free Cash Flow(FCF) Growth Rate
  3. Management. The company should have a good management team. Do a lot of research on the company.
  4. Margin of Safety (MOR). The company’s market price should be less than 50% of the fair market price.
    1. Use MACD, 8/17/9 to catch from valley to peak
    2. Use Stoch, 14/5 to catch the buy/sell line
    3. Use Moving average, 10 to catch the above line.

Applications

  1. Monsanto Stock
  2. Syngenta

Reference

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