What kind of companies are we looking for? We use what most people would refer to value investing. This means that we look for companies that have a solid business model with an edge compared to competitors.
The business model needs to be easy to operate and it should have a long term viability. That could mean that the company shows good revenue growth with a decent profit, both revenue and profit should be growing year-to-year and should have done that for many years. We do not invest in companies that don't grow their revenue or that are not profitable.
Another aspect we look at is the amount of long-term debt. We prefer companies with low or ideally no long term debt at all. While at the moment we enjoy a phase of very low interest rates, this can change. The more long-term debt a company has, the bigger the impact will be on profitability once interest rates start to increase. A company with a lot long-term debt will need more time to pay back the principle in order to reduce the interest paid for that debt. Money used to reduce debt is not available elsewhere in the company.
Another factor is whether we understand the business model of the company. We accept that companies are exposed to risk. As long as those risks are either clearly declared by the company or otherwise visible, it's fine as we can then consider those risks as part of our investment decisions.
When we invest in a company we build our position as if the stock exchanges close tomorrow and reopen only 5 to 10 years from now. Apart from exceptional circumstances, we do not intend to sell share prior to that.
One element that is important to us is the share price. As with tangible products like cars, premium products are generally more expensive. In this context "premium" means a company with a sustainable competitive advantage in an easy to understand business model. Price can be measure in different ways, for example price/earnings ratio or price/revenue ratio. By and large we find shares interesting once their price per share have a multiple of less than 10 of the earnings per share. Equally if the price is one dollar or less per dollar of revenue, that could be an indicator bringing shares on our radar screen, too.
There are many other factors that influence our decisions. We'll cover more of them in future blog post. The important lesson is: Don't buy what you don't understand. If a company looks interesting, then observe it for many months if not years. Look at what they are doing as a group within their respective markets. Try to identify risks. Don't be afraid to miss out. If you do miss out, don't worry another opportunity is just around the corner.
Happy investing!
The business model needs to be easy to operate and it should have a long term viability. That could mean that the company shows good revenue growth with a decent profit, both revenue and profit should be growing year-to-year and should have done that for many years. We do not invest in companies that don't grow their revenue or that are not profitable.
Another aspect we look at is the amount of long-term debt. We prefer companies with low or ideally no long term debt at all. While at the moment we enjoy a phase of very low interest rates, this can change. The more long-term debt a company has, the bigger the impact will be on profitability once interest rates start to increase. A company with a lot long-term debt will need more time to pay back the principle in order to reduce the interest paid for that debt. Money used to reduce debt is not available elsewhere in the company.
Another factor is whether we understand the business model of the company. We accept that companies are exposed to risk. As long as those risks are either clearly declared by the company or otherwise visible, it's fine as we can then consider those risks as part of our investment decisions.
When we invest in a company we build our position as if the stock exchanges close tomorrow and reopen only 5 to 10 years from now. Apart from exceptional circumstances, we do not intend to sell share prior to that.
One element that is important to us is the share price. As with tangible products like cars, premium products are generally more expensive. In this context "premium" means a company with a sustainable competitive advantage in an easy to understand business model. Price can be measure in different ways, for example price/earnings ratio or price/revenue ratio. By and large we find shares interesting once their price per share have a multiple of less than 10 of the earnings per share. Equally if the price is one dollar or less per dollar of revenue, that could be an indicator bringing shares on our radar screen, too.
There are many other factors that influence our decisions. We'll cover more of them in future blog post. The important lesson is: Don't buy what you don't understand. If a company looks interesting, then observe it for many months if not years. Look at what they are doing as a group within their respective markets. Try to identify risks. Don't be afraid to miss out. If you do miss out, don't worry another opportunity is just around the corner.
Happy investing!
