Tuesday, November 21, 2006

Company cheatsheet and stuff - not to be missed!

According to Philip Fisher, one of Buffett's teachers (besides Ben Graham), you cannot never compile a cheatsheet for a company. You have to constantly sniff out info on the company, keep talking to anybody and everybody, from suppliers to customers to employees etc. So analysing a company probably takes like two gozillion years and Frodo have completed the Mt Doom trip like 15 times.

In our world of MTV and instant gratification. Nobody has time for this crap right? So yours truly here has compiled a the ultimate cheatsheet to look at when you first lay your eyes on a company.

I must stress that this cheatsheet is not exhaustive. There are probably another 1,001 things that you should look at. But it should be a good way to start. Also remember than the time you spent researching a company is inversely proportional to the risk that you will lose money. i.e. more research less risk.

But then again who has time to wait for Frodo to go Mt Doom 15x considering we don't even have time to make babies. So I have also kindly calculate the optimal time to spend research a co.

This would be roughly 30 hrs for beginners and 10 hrs for more lao jiao people. But after analysing, this does not mean that you should buy or sell the stock immediately. You should wait for a good time to enter or exit. Investing needs patience, so watch less MTV.

Anyway, to save you from more bull shit, here's the list.

Company specific factors
Mkt cap greater than S$100mn
Operating Profit greater than S$10mn
OPM greater than 10%
Dividend yield greater than 4%
D/E Ratio less than 1x
Growth greater than 5%
ROE greater than 15%
ROA greater than 5%
(Usually these factors can be put into a screening tool to screen out companies that meet these criterias, but I have not found a free screening tool yet... if anyone can find one, pls inform me ok?)

Qualitative factors
Industry climate and firm's position
Strengths and weaknesses of the firm
Major risks for the firm

PER less than 18x
PBR less than 4x
EV/EBITDA less than 10x
(These can be put into the screening tool as well)

There are a few things to take note. Even if a firm fails to meet 1 or 2 criteria, it doesn't mean that the stock is lousy. If there are good reasons, it is still a buy. If you try to find a stock that meets everything, probably there won't be any. That's why the each criteria is actually not too strict to begin with. Also, qualitative info matters, that's why it pays to read annual reports, research reports and business news.

See also Investment Philosophy
and Investment Process


  1. This is a very gd tip for my upcoming finance interviews^^ thanks!

  2. This comment has been removed by a blog administrator.

  3. any stock screening programs that are useful for singapore stocks?

  4. I haven't found a free software that can screen singapore stocks but I heard POEMS have a good system.

    Am still looking for one. If anyone knows, pls share it on this site.

  5. Hey this is great stuff! Will surely put it to action!

    Hmmm....got a suggestion, put Michael Porter's 5 forces analysis into the "Qualitative factors" analysis. Think this way it'll help analysis become more systematic.

  6. POEMS has a decent screen tool. You can screen by Price, Market Cap, Growth Rates, Operating Profit Margin, Revenue Growth Rate, EPS Growth Rate, Dividend Yield, ROE, PE Ratio, Price/NTA Ratio, Current Ratio, Debt/Equity Ratio.

    I think your screen has too much constraints. For example, as an individual investors, I would have not problem putting money in companies with smaller market cap since liquidity is not going to be an issue.

    In fact, I have had good results investing in the $80MM-$100MM range since these companies tend to be overlooked by most institutional investors and could enjoy a boost in the number of target investors when market cap reached $100MM+.

    Also the 4x price to book is a little to lax.

    Nice blog by the way.

  7. Thanks Soomo, yeah I heard of the POEMS screening tool, I opened an account with POEMS bcos of that. Am looking for one that is complete free and yet more powerful. But looks like it's a tough call.

    Also, I agree with you that at $80mn we can still find good stuff. That is the thing with screening, it needs to cut things off at a strict no. So take my criterias as "guidelines" in that sense.

  8. Great blog.

    The problem with investing in Singapore stocks at the moment is that we are towards the end of this cycle. Asian markets have risen over 300% since their lows in October 2002. At the moment the sorts of value filters you suggest are throwing up pretty low quality stuff as the good stuff has been re-rated to higher PEs. It means if you want to find interesting high quality value companies you either have to compromise on value or you need to throw away the market cap filter. I suggest that losing your process is a gross error, and so you'll need to lose the market cap filter. Basically the institutions can't go below about SGD$100mn market cap as the liquidity frightens them. For the value investor, illiquidity is your friend, as you know the company is solid, and when the numbers come through, the punters will squeeze it higher. My two tips are for your readers to keep reading the research on the SGX website, as there look to be some sensible smaller names. Also, your readers should use the SGX website to read the CEO and Directors comments in the Annual Reports (and the more limited quarterly comments). These give a fantastic insight into whether the CEO wants to share his company with you, or just achieve the bare minimum of disclosure. Finally, I suggest that you should put more emphasis on Book Value, and less on earnings at the moment, as earnings can evaporate a lot faster than book value. Keep up the great work.