Tuesday, 8 October 2013

20 Questions From Top Investors

If Bolton, Buffett, Graham, Lynch and Woodford were to grill you about your next share idea, what questions would they ask?

What if you knew one of the great investors and he asked you some simple questions to check that you'd given your latest share idea due consideration? What questions would he consider to be important, based on his own philosophy?

Anthony Bolton might perhaps ask:
* Will this business be around in 10 years' time and it is likely to be more valuable than today?
* Do you trust the management, in particular its competence and integrity?
* Is the company or sector unloved and under-owned (which is usually a good sign)?
* Are you making a decision based on your own research, rather than letting price movements influence your behaviour?

Peter Lynch would inquire:
* Can you summarise in a few sentences why you own this company in a way a teenager could understand?
* Is it a dominant player in a sustainable industry unlikely to face aggressive competition?
* ...Or is it a reasonably priced, well-performing company?
* Does it have a strong balance sheet, with low levels of debt relative to equity financing and, in particular, low levels of bank debt?

Neil Woodford might challenge with:
* Is the company undervalued and capable of paying dividends (but not necessarily doing so right now) and growing them over time?
* Are you concentrating on the fundamentals -- on identifying undervalued situations -- rather than being swayed by fashion or momentum?
* Are you listening to the investment choices of people you respect?
* Have you met the management of this company, where it's practical to do so?

Warren Buffett would pry:
* Are you taking your cues from values, rather than from price action?
* Are you thinking for yourself and not being contrarian for the sake of it?
* Is it a good company at a fair or good price?
* Is the business doing something quite similar today to what it was doing five or ten years ago?

Benjamin Graham would ask:
* Is the company trading significantly cheaper than you think it's worth?
* Does the long-term debt cede to the long-term assets?
* You're not just trading again because you're bored, are you?
* If you think this is a higher risk share, have you put the extra effort in to ensure it's worth it?

Here's a hint: the answer these guys are looking for is 'Yes' in all but one question, but surely you can deduce which one?

And did you realise it was possible to write a whole article just using questions?

BY Neil Faulkner

Quote for the day

“Trading must be addressed as a profession, because if you do not treat it as such, those who do will separate you from your money very quickly.” - Marty Schwartz

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