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The PENCILS Strategy



November 29, 2006 – Comments (0)

Price. The price should be at a good level considering the business value (financials, products, etc.) of a company.

Earnings growth. Your reasonable estimates for growth should be one that over the long-term would provide a nice return on your investment (this is where the Future Value technique comes in).

Niche. A company must have a niche in its market, otherwise it is very difficult to survive for very long.

Common products. I believe it is the companies with common (and, preferably, simple) products that make great long-term investments, as long as it fits the bill with the other "pencils" letters.

Intelligent leaders. Without intelligent management, you won't feel comfortable with investing in a company.

Long-term prospects. Investing is all about the long-term. If the long-term prospects aren't there, neither should your investing money.

Secure financially. Financial security is key for a company's long-term success, because it is what allows a company to take advantage of growth opportunities. (This, of course, is assuming it isn't in a turnaround situation, special situation, etc.)


Earnings growth


Common product

Intelligent leaders

Long-term prospects

Secure financially

I believe companies with the PENCILS characteristics are among the top long-term investments out there. Really, all you need is to find some companies that have all the PENCILS charicteristics, except price, and wait for a downfall. The PENCILS strategy is all about finding great, well-run companies that are at great prices. Find ENCILS, wait for the P.

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