20 question to ask before buying a stock in your club … · · 2018-03-1220 questions to ask...
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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by Doug Gerlach,ICLUBcentral Inc.
July 2013
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} The information in this presentation is for educational purposes only and is not intended to be a recommendation to purchase or sell any of the stocks, mutual funds, or other securities that may be referenced. The securities of companies referenced or featured in the seminar materials are for illustrative purposes only and are not to be considered endorsed or recommended for purchase or sale by BetterInvesting™ National Association of Investors Corporation (“BI”) or volunteers. The views expressed are those of the instructors, commentators, guests and participants, as the case may be, and do not necessarily represent those of BetterInvesting™. Investors should conduct their own review and analysis of any company of interest before making an investment decision.
} Securities discussed may be held by the instructors in their own personal portfolios or in those of their clients. BI presenters and volunteers are held to a strict code of conduct that precludes benefiting financially from educational presentations or public activities via any BetterInvesting programs, events and/or educational sessions in which they participate. Any violation is strictly prohibited and should be reported to the President of BetterInvesting or the Manager of Volunteer Relations.
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} Club doesn’t have (or doesn’t follow) fixed investment guidelines.
} All clubs should have written investment policy statement and written stock selection guidelines to add members in researching companies.
} Tonight’s presentation will give you guidelines on 20 questions to review & discuss before buying any stock.
} Your club should develop own guidelines.
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} Growth of company’s profits drive growth of stock price.
} Without growth in profits, price can’t be driven upwards with sufficient regularity & strength to reward investors.
COMPANY PROFIT GROWTH DRIVES SHARE PRICE GROWTH OVER LONG-
TERM.
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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7Historical growth should be close to straight line.
Source: myICLUB.com Stock Quote/Information page.
8Buying companies that are growing too slowly will lower portfolio returns.
Source: Toolkit 6 Manual.
20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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9Outliers should be removed. Recent growth is weighted more heavily.
Source: Toolkit 6.
10Recent quarter should not show downtrend. Investigate if necessary.
20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} What are the primary drivers of future growth (tailwinds)
} What are the key obstacles to future growththat should be monitored (headwinds)?
} You should be able to identify several of these specific issues and advantages.
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} Question: Where do I find information on tailwinds & headwinds that can affect growth?
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} Question: Where do I find information on tailwinds & headwinds that can affect growth?
} Answer: Some good research sources include:◦ Company’s 10-Q, 10-K, 8-K SEC filings.◦ Seeking Alpha conference call
transcripts.◦ News articles & commentary at Yahoo!
Finance News for company.
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} Project your idea of most likely future growth for company.
} Review & incorporate:◦ Expected drivers of future growth.◦ Company guidance.◦ Analysts estimates.◦ Assessment of past growth.◦ Trend of change in growth rate.◦ Implied growth rate.
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} Question: What is “company guidance”?
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} Question: What is “company guidance”?
} Answer: Companies often provide public estimates of range of their future expected growth of revenues & earnings.} You can find this info on company IR
website, in press releases, or in conference call transcripts.
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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17If growth is slowing, incorporate that fact into future expectations.
18Toolkit allows plotting of future EPS estimates to aid future growth projection.
20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} Do all growth measures suggest that this company warrants consideration?◦ Historical◦ Relevant◦ Recent◦ By Company Size
If so, continue.If not, find another company!
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Questions?
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} Companies that exhibit indicators of high quality are:◦ Better suited to weather bad times.◦ Perform better than competitors.◦ Deliver more consistent results.
LOW-QUALITY COMPANIES MAY BE MORE LIKELY TO DISAPPOINT IN LONG-TERM.
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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23Margins should be steady or growing.
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Company or Industry Group 5-Yr Average PTP MarginsCompany #1 18.6%
Company #2 2.2%
Company #3 -1.7%
Company #4 -0.2%
Industry Average 12.1%
Industry averages from StockCentral.com, competitors from Yahoo! Finance.
20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} Question: Where do I find industry comparisons for margins and other ratios?
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} Question: Where do I find competitors and industry comparisons for margins and other ratios?
} Answer: I like the following:◦ StockCentral.com’s sector/industry average
browser.◦ MSN Money’s key fundamental ratios.◦ Yahoo! Finance competitors.
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} What are the primary drivers (tailwinds) & key obstacles (headwinds) that should be understood & monitored with respect to company’s margins?
} Research sources:◦ Company’s 10-Q, 10-K, 8-K SEC filings.◦ Seeking Alpha conference call transcripts.◦ News articles & commentary at Yahoo! Finance
News Headlines for company.
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} Do quality measures suggest that this company warrants consideration?
If so, continue.If not, find another company!
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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Questions?
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} Better to be patient or even “miss opportunity” is stock is outside range of good valuation.
PAYING TOO MUCH FOR A STOCK WILL LOWER RETURNS OR EVEN INCREASE
LOSSES.
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32Eliminate outliers, &d also consider past P/Es in respect to future selected growth.
20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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Its often OK to see downtrend for company with slowing growth, but incorporate trend into future P/E judgment.
} Is company currently selling below or close to Average P/E Ratio (Relative Value <~100%)?
34Try to buy only when Relative Value is near or below 100%.
20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} You will usually adjust future expected High & Low P/E Ratios below historical levels.
} Proj Avg P/E = (Sel High P/E + Sel Low P/E)/2} How does Current P/E compare?
◦ Current P/E should be close or lower.
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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High P/E Low P/E10-Year Averages 30.5 17.9Adjusted 10-Year Averages 28.6 14.75-Year (Section 3) Averages 29.2 17.3Adjusted 5-Year (Section 3) Averages 28.1 13.6TK6 Median 29.5 18.5TK6 Alt-M (Avg. 5 lowest high/Avg. 5 lowest low) 28.4 15.41.5 x EPS Growth Rate (13.3%) 20.0 ---User Entered ? ?
For anything except mature growth companies, future P/Es should likely be below historical levels.
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Use Revenue-Based EPS tool (Preferred Procedure) to double-check EPS projection.
20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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39Forecast low price option is usually best.
40Don’t buy if U/D Ratio is less than 3:1.
20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} Total return doesn’t have to be >15% for every stock, but the more stocks you have in your portfolio that underperform this target, the less chance you will have at beating overall market.
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Questions?
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} How does current & near-term economic climate affect this company’s business?
◦ Is company cyclical or adversely affected by economic slowdowns?
} How stable & competent is company’s board & management team?
◦ How long has key management been in place?◦ Are insiders buying or selling?◦ Is board diverse & independent?
} Are there poorly performing holdings that should be sold or replaced in your portfolio?
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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} How does the size of this company fit with other holdings?
◦ Do not overload on large company stocks.} How does industry group of company fit
with other holdings?◦ Diversify by industry group.
} Would buying this company improve the overall quality & return of portfolio?
◦ Is there a weaker holding you can replace with this stock?
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} Use Questionsbox in GoToWebinarapplet to type questions.
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20 Questions to Ask Before Buying a Stock in Your Investment ClubDoug Gerlach, myICLUB.com, [email protected]
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MoreQuestions?
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myICLUB.comwww.myICLUB.com
ICLUBcentral Inc.www.iclub.com
Write me:[email protected]
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