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I graduated with an MBA in finance from Indiana University. I worked in investments for One America for 7 years. I currently own a small business and run an investment blog called Lean Investor.
- Description: Newsletter author. Trading frequency: Infrequent
- Interests: Dividend stock ideas & income, Stocks - long
Lean Investor Many investment professionals offer glimpses of how they pick companies to buy. I have spent 10 years compiling a list of questions and hurdles I use to compare and choose each company in my investment portfolio. This list has helped me quantify my investment approach and improve my company selection ...More
process. I’m a disciplined value investor and I look for opportunities to take advantage of everywhere. Leave no stone unturned and good luck. Please send me your feedback and any other measures or metrics you use to help choose suitable investments. The Lean Investor investment approach consists of the following strategy: 1. Buy Companies not Stocks- evaluate the company as if you were buying the whole business as the owner. Would you buy the entire company and hold it forever? 2. Buy when others are afraid and sell when others are excited. 3. Invest with a 5-10 year investment horizon. 4. Don’t let short-term market events affect judgment. 5. Invest only in companies you understand. 6. Look for Moats- barriers to entry give companies a competitive advantage. I really like using Morningstar Stock Investor. Signs of a good economic moat: A. Cost advantage B. Intangible assets C. High switching costs D. Network effect E. Efficient scale 7. Read the 10K filing of each company before you buy. Pay attention to: A. Auditor Changes or Disagreements- Middle of Part II B. Risk Factors- Middle of Part I C. Legal Proceedings- Near risk factors D. Consolidated Financial Statements- Near the end in the notes E. Management’s Discussion of Results- Beginning of Part II 8. Try to avoid commodity businesses with little pricing power. 9. Do not invest in companies that require a lot of assets or debt to operate. No capital intensive businesses. i.e.: airlines 10. Buy a good business at a fair price, not a bad business at a cheap price. 11. Return on Equity greater than 15%. 12. Return on Capital greater than 15%. 13. Margin of Safety- calculate the Discounted Cash Flow of each company and only buy if the company is selling at a 30% discount from its true value. 14. Look for high profit margin companies. 15. Look for companies with great management. 16. Look at a company’s cash flow and not its earnings. Cash flows are more difficult to manipulate. 17. Dividends Matter- look for companies with solid predictable earnings that pay growing dividends. I like to see at least 5-10 years of increased earnings. 18. See the Forest from the Trees- are you focusing on a few good points of the company or business and missing the bigger risks or problems the company faces? 19. Evaluate each company using Porter’s 5 Forces to test their staying power and competitive position in their industry. 20. Where will the company be in 10 years? How predictable is the company’s cash flows? 21. What are debt levels? I like companies with little to no debt. My maximum threshold is 40% of capital. 22. When you value invest you must avoid value traps. Is the company cheap for a good reason? Is the industry eroding? As you have probably noticed I have borrowed most of my criteria from Warren Buffett and Benjamin Graham.
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