PFF Panel 3
Seedly PFF 2019
Asked by Anonymous
Asked on 02 Mar 2019
Just want to mention that perhaps you may also want to adopt a more macro-view and look at which stage of the business cycle the economy is at. Some stocks tend to perform relative to others at various stages of the business cycle.
For example: you may want to consider buying stocks belonging to the cyclical industries, where they have above-average sensitivity to the state of the economy. Examples include: consumer durables and capital goods when there is an expansion in the business cycle.
Conversely, you may want to consider buying stocks belonging to defensive industries, where they have little sensitivity to the business cycle and are not as heavily as affected as those stocks belonging to the cyclical industries during times of contraction/recession/downturn. Examples include: consumer staples, pharmaceuticals and public utilities.
These are some of the things that i will use to see whether to buy a stock.
1) It is important to know what exactly the company does, how they generate revenue etc, essentially knowing the company's business model.
2) It is also important to know the P/E ratio.
3) I would also usually look at the dividends of the company, i would choose to invest in stocks with a high dividend.
4) I would also look at the company's financial statement to get a better idea of the company's current financial health so as to establish whether im confident enough to park my money in the company.
Hope this helps!
I take a more quantitative approach towards investing and the very first thing to do is to find an edge in the markets. For example, I don't use ROE or ROIC metrics because studies have shown that the performance becomes worse.
And i stick to proven Factors like P/B ratio to determine Value stocks.
#1: Do you understand what the business model is, and how they make money? What kind of people are running the business, and can they be trusted? Do they allocate capital efficiently?
#2: Have you validated this against their financial statements? What is their financial standing? Look at metrics like current ratio (their ability to pay their short term debt obligations), operating cashflow (are they making or losing money?), etc. Different industries = different metrics, which is why you must first understand #1
#3: What are their current valuations? Are they overpriced or undervalued? Some useful metrics could be price-to-earnings ratio, price-to-book ratio, net-net valuation (which Alvin taught during the festival), discounted cashflow, etc. There are a number of valuation strategies to look at.
Hi there! Here is an investment checklist I use before buying a stock!