Some of my investing criteria:
- Only buy what you understand-simple enough lol. But truly if I can’t understand or it’s to complicated I won’t touch it. That’s probably why I don’t own a lot of tech or software names.
- Strong Management. Stronger the management, better the business will be in the long run.
- I absolutely love FCF and if that’s growing and high I’m inclined to look even more into the company but FCF is one of my favorite things to see, way to many companies today just don’t make any money it’s crazy to me. Yes there’s other things to look at like PE ratio and things like that but if you asked me my favorite thing to look at it’s free cash flow.
- Acquisitions but not just acquisitions just for the sake of acquisitions. I would love them to be strategic and make sense. I would have liked management to thought about it and have a plan not just to acquire just for the sake of acquiring. I also like to see a plan and vision for the future. How do you plan to grow, how do you plan to make more money, how do you plan to compete and beat out all the others in your industry. I love a completion and I love when my company can say it’s the best. Maybe lucid one day lol.
- Lastly, always research, continue to verify and invest for the long run.
These are just some of my criteria that I look at, of course there’s more to any investment but I wanted to just share things I do and what I like to see
How would you describe your learning process for #2? Unfortunately I think I am prone to a Stockholm-syndrome-like effect — if I spend enough time watching YouTube clips of CEOs, I usually think they’re geniuses by the time I’m done.
@nathanworden @tpellom yeah that tends to happen to a lot of people including me. I have a couple of things that help me. Experience is big for me. How long have they been in this area, how long have they been with the company. How well does the ceo allocate capital. At the end of the day the ceo is in charge and makes the final decision how well does he allocate capital not only to the business but also with shareholders interest in mind. How well is the talent around him to help him grow and help with with his vision. I study the memebers on the board and management team just as much as the ceo. Is the ceo consistently working to extend the companies competitive advantage or is he just all talk. A lot of CEO’s know a day talk the talk and don’t walk the walk if that makes sense. And then there’s common stuff like do they have shares in the business, do they have a clear vision and seem level headed, do employees like him and it’s a good work environment, and lastly do they have a track record of success. Is the ceo successful, has the business been successful. This is a lot of what I look for
How do you value the management team? For me that‘s often the most difficult part
Excellent point about acquisitions. In terms of keeping tabs on the quality of a company's acquisitions do you keep track of this organically? Or do you have any specific research tools that help this part of your DD ?
@joeyhirendernath no specific research tools I have a journal that talks about each acquisition a company has done and why they did it. I think each acquisition should truly either build on each other or on the company itself so if I see an acquisition that don’t make sense I check back on previous acquisitions and I’m like yeah idk about that one. I think acquisitions are very important timing wise too. It has to be the right time. I’m fine with an overpay believe it or not if it makes sense for the company I’m more worried about the timing of the acquisition. Timing in the company and timing in the macro environment. Acquisitions are very important and can help foster a business to new heights but a ceo that’s acquisition happy leads me to my comments you shoud check out above and why a ceo might be losing sight of his vision and things like that
Wonderful insights man, one thing I figured after looking more into management is that SimplyWallSt gives a ton of useful info on the Management of a company.
Gotta love acquisitions too, when done right. Great opportunity to grow.
@seasnar yeah I really enjoy simply Wall Street. It’s a pretty useful app. One of the only apps I have on my phone lol. Acquisitions are always fun to dream about but a lot of the time you have to make sure and ask if it makes sense for the company and not just buying just for the sake of buying
Damn the 4. point. If there is any management out there than makes M&A without any strategic sense should be fired at the spot.
@christian7621 agree, but I think management needs to have a vision of their own of what the future of the company is. They have most of the information to make those decision, so sometimes they should not look through it only via the lens what will the stock price do if I announce this deal.