Investment TIPS for the successful investor :
- Understandable : You don't need to be really business savvy but you must at least have some understandings of the busi-ness in which the companies operate. You should be able to provide a description of the companies products and markets.
- Little or no debt : Choose a company that is not highly leve-rage financially. Sometimes a healthy company may incur a substantial amount of debt due to an acquisition. If you still want to invest in that kind of company then make sure it has been reducing this debt by a significant amount during the last few quarters.
- Market Cap. potential : Choose companies that have the potential to multiply it's market capitalization by 5 to 20 times over many years with good execution by management. A company sales potential is inherently limited in the field in which it operates no matter how well it is managed. You can determine a new company potential by comparing it to a more mature company in the same field. So always keep in perspective the company current market cap and the market cap potential in the future when you decide to invest in it.
- Failed promises : Always follow the news of the companies you are invested in. Sell the companies that have a history of failed promises. It indicate that it's a poor business or/and a poor management. Make a distinction from bad management and bad market conditions because the latter is temporary.
- Successful companies : Keep the winners in your portfolio and sell the losers. If your winners has increased so much in value in respect to your total portfolio asset that you are uncomfor-table, then you can at least trim some of it's value. But always keep your winners if the fundamentals remain good year after year because those few winners in your portfolio are the ones that will makes you wealthy in 10 to 20 years. But be ready to sell them if the fundamentals deteriorate significantly.
- Diversification : Investing in companies is like buying businesses. You can start by investing 2% of your portfolio assets in each company. As the company show continued improvement in it's business and earnings, you can gradually increase your investment in it up to 5% of your assets. You can gradually add new companies to your portfolio as you find them. Be aware that it’s normal that some of the companies may perform well while others may not. You can still achieve a good overall investment return over a long period of time with a few excellent performers in your portfolio.
- Value : P/E (price/earnings) and PEG (P/E divide by growth) ratios are often used to determined if a stock is undervalued or overvalued. A stock with a PEG ratio less than 1.0 is usually considered undervalued. Athough it can provide a good price entry point, the most important aspect of the company is it's future market cap. potential as describe above.
Note : The investment tips provided here are not intented as investment advice. Please consult your investment adviser before making any investment decision.
