Entry Questions
The following questions maybe asked before buying a stock.
Objective Questions
- Will you allocate at least 5% of your total portfolio to buy this stock?
- If you are allowed to buy only 20 stocks in your life time, will this be one?
- Will it turn 10x in 10 years AND 100x in 20 years?
- Is the PE ratio single digit?
- Is the PE ratio lower than that of the market (S&P500 or Nasdaq100 or equivalent)?
- Sales growth?
- Profit margin?
- Ratio of sales to invested capital?
- Rate of return on invested capital AND equity?
Subjective Questions
- Will this business/stock exist after 10/20 years from now?
- How hard it is to enter into the business? Think about the moat. Can a low cost producer replace this product/service?
Exit Questions
- Is the company producing consitently low return on equity AND Still deploying more money into the same business?
- Is the management turned bad?
- Bad ethics
- Bad way of treating people
- Not admitting the mistakes