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Turning over more stones



March 19, 2011 – Comments (0)

In general, my approach is to identify the company which I would like to own (without looking at the price ;-)), and then figure out the right price to pay. 

Some clues which I look at (and they shouldn't be too revolutionary):
a) Good Management -
I find myself referencing Jim Collin's level 5 leader guideline and my own personal judgement. Particularly, I like to see how management comes to decisions in a crisis or opportunity and demonstrate disciplined growth. 
b) Demonstrated performance - I think that 2008/2009 presents a set of data-points which provides great clues on how the management manages through tough times. I feel that by targeting companies who displayed revenue/EPS growth over this period gives me a "margin of safety" over inevitable recessions. 
c) Price - I admit that I am a little bit of a dip on the price. Price drops do attract me. Right now, I tend to look at what the projections are and figure out the P/E level which the stock will arrive at in the end of the following year (mainly for growth stocks). This provides another layer "margin of safety". Although this seems to be awfully short term in thinking, I like to think of this as my acknowledgement of my own imperfect foresight beyond one year. Because the choice of company comes first, this also provides a spurt on overall performance too. 
d) Space to grow - This is tougher. Peter Lynch and TMF1000 have disarmingly simple, rational methods to be vaguely right and not precisely wrong on the size of the market. This probably comes from years of experience. I rely on the seasoned SA folks on this. 
e) Consistent coverage - This was not by intent. But the consistent coverage of TMF1000/TMFCop/VTDave (in particular) often draw me to the stock which I may not have interest in the first place.  

There is a thought that turning over more stones wins the long term race, and this works for me. How about your approach? 

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