Thursday, 15 April 2010

The QVM approach to finding promising Growth Stocks

QUALITY:  I recommend that you start by examining earnings for several years because companies that have grown strongly for several years, on average, are sound candidates to generate good earnings in the future.

VALUE:  Before you buy a growth stock, you should consider the possibility that the price may already be reflecting a high growth potential.  Evaluate its P/E ratio or, preferably, compute its intrinsic value.

MANAGEMENT:  You will need to examine the qualitative variables, such as the quality of management and company culture, as they are the true underpinnings of future growth.

Overall, success in growth investing requires you to have 
  • a very good knowledge of the company's business and 
  • an ability to forecast its earnings well.

These most important determinants of your success in investing can be abbreviated as the QVM approach

Q = Quality - the quality of the company you own
V = Value - the price you paid for your stock
M = Management - the integrity of its management

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