🏰 How to select stocks
#QualityTuesday
It’s #QualityTuesday!
In this series, we will teach you 5 things about the stock market in less than 5 minutes.
1️⃣ Stock selection framework
How to select stocks using a simple 5-step framework:
Universe of ideas: define your investable universe
Circle of competence: only invest in what you understand
Financial stability filter: filter for companies with a healthy balance sheet, high profitability and attractive growth rate
Wide moat: only keep the companies with a sustainable competitive advantage
Price filter: select the companies which trade at a cheap or fair price
2️⃣ Just imagine
Imagine that you had $86,400 in your bank account.
If someone stole $10 from you, would you be upset and throw all of the remaining $86,390 away in hopes of getting back at the person who stole it from you? The answer is no. You move on and live.
Well, we all have 86,400 seconds each day. Don’t let someone’s negative 10 seconds ruin the remaining 86,390.
3️⃣ One simple investment quote
If you aren’t making money while you sleep, you’ll work until you die.
Compounding works like magic if you let it work for you long enough.
4️⃣ The best time to buy stocks
Warren Buffett stated once that you should be fearful when others are greedy and greedy when others are fearful.
The chart below shows that when you would only own stocks on days after a Down Day, you would massively outperform a portfolio that only owns stocks after an Up Day.
What you can learn from this? The best time to buy stocks is when there's blood in the streets.
5️⃣ Example of a Quality Company
The write-up from Nick Sleep on Costco is pure gold.
The analysis hereunder was written in February 2005. Since then, the stock is up more than 1000% (10X):
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About the author
Compounding Quality is a professional investor which manages a worldwide equity fund with more than $150 million in Assets Under Management. We have read over 500 investment books and spend more than 50 hours per week researching stocks.
After the unforgettable weekend in Omaha, we go back to our lives, jobs and aspirations.
The journey for personal growth never ends and that's the best part of it.
CQ, thank you for all the wonderful wisdom you send our way.
Regarding item Two of today's article, I just wanted to share a few of my favorite words by Marcus Aurelius:
"To live a good life: We all have the potential for it If we learn to be indifferent to what makes no difference."
Best Regards, my friend!
Thanks for the very valuable investing reminders. I myself have interrupted compounding of my investments when I was in my ignorant 30s. I have learned a hard lesson from that mistake. Thanks again for constantly reminding us about this.