Friday, 13 July 2012
Investing is simple. We need only to see the management do these!
In a nutshell:
*A company is a good candidate for investment if its management is capable of producing a solid history of steady and strong sales and earnings growth.
*If the management of such a company demonstrates it can consistently retain a steady or increasing profit from its revenues, its track record is likely to continue.
*In the long term, the price of a share of stock is tied to a company’s earnings hence, if earnings grow so will the price of that company’s stock.
*If you buy a good company’s stock when the ratio of its price to its earnings is at or below its historical average, you can expect the value of your investment to grow at or above the rate of its earnings growth.
*If the average annual earnings growth of the companies you invest in is fifteen percent or more, you can double your money every five years by holding on to those companies so long as that growth continues, and replacing them when it doesn’t.
*No matter how careful you are, one out of five companies you select will disappoint you and one will exceed your expectations.
This set of statements is elegant in its simplicity. Where in any of this do we find any need to explore how management accomplishes these feats? We need only to see that they do!