What is your share selection criteria?

[contrarianinvestor]

What are the most important aspects that I should consider when selecting shares? What are your typical buy/sell signals? It will be useful to get a list here. Thanks.

[shasta]

What are the most important aspects that I should consider when selecting shares? What are your typical buy/sell signals? It will be useful to get a list here. Thanks.

These are some of the criteria i use to select resource type stocks.

* Producers, or near term only (<12 months)
* Companies with cash/generating cash
* Companies that make capital returns/takeover plays
* Debt gearing <25%, or min 5 times interest covered
* Companies trading well below "fair value" (refer broker valuations)
* Companies with good growth prospects (i.e. P/E < 10)
* Companies with “above average” ROI/ROE (increasing over 5 years)
* Top 20 Shareholders holding over 50% of shares on issue
* Decent Board/Management, who owns 10%+
* Companies that promote themselves via investor presentations & communicate with shareholders

Not all companies fulfill all of the points, but it helps filter the better options

[POSSUM THE CAT]

Stage ONE Engage Brain

[contrarianinvestor]

Companies with good growth prospects (i.e. P/E < 10)

Thanks for your insights. What do you mean by "growth prospects" - share price or business sales/profits?

Another question. If you see a company at a very low P/E (such as 3) what does that imply? Bargain or serious trouble in the business?

[shasta]

Thanks for your insights. What do you mean by "growth prospects" - share price or business sales/profits?

Another question. If you see a company at a very low P/E (such as 3) what does that imply? Bargain or serious trouble in the business?

Good questions

What i meant is, say you check the healthcare sector average P/E ratio, probably the most they have dropped is to around 10 - 12 even in a recessionary environment during a global credit crunch!

A decent well run company, with a history of performing with a fwd P/E < 10, may be undervalued (this is where peer comparison comes in)

I'll use SIP as a healthcare example, they have forecast 2010 P/E @ 12.5, & 2011 P/E @ 11.5, ASB Sec shows the sector average at 14

SIP is slightly undervalued if compared to the Healthcare sector average.

(SHL has forecast 2010 P/E @ 14.4, RHC has 2010 @ 13.5 etc)

Some companies with a history of exceeding expectations command a premium, & may trade on P/E's of 20 - 30 (especially in bull markets).

(If you check the Investment section - re Water - i have illustrated UGL who over 5 years every year grew revenue, profits, eps & dividends. There fwd P/E is ~14 when the sector average is ~9).

As for companies with low P/E's, below say 4 - i'd be very wary & would look into this in quite some depth.

I'd check out debt levels, cash levels, any profit down grades etc

Usually abnormal items, ie one off transactions could be the cause, or else a SP slide (& if the charts ugly, run for the hills!).

In saying that, there are bargins that the market overlooks from time to time, my ASX thread on MNL highlights this.

Remember a company's forward P/E is only one piece of the puzzle!

[Steve]

Personally, I find that the level of ramping on Sharetrader is a good criteria for selection...

[contrarianinvestor]

To learn more Google ADX indicator.
AA

Thanks. I found this link.
http://www.investopedia.com/articles...-indicator.asp

[shasta]

Personally, I find that the level of ramping on Sharetrader is a good criteria for selection...

Um, exactly whose ramping Steve?

I gave CI some examples, i dont hold any of those stocks mentioned & AA's post was extremely helpful & informative?

I take issue if your implying i'm ramping :mad:

I've been quite happy to share what i know with those posting in the newbie thread, clearly outlining EXAMPLES.

If you don't want to contribute that's fine, but coming on here to knock those who do, is very counter productive for those who post genuine questions.

[dragonz]

Personally, I find that the level of ramping on Sharetrader is a good criteria for selection...

Not sure who you are referring to ramping but I've found both sasta and AA excellent contributors who we are lucky enough sharing their different skills on share trader. Both have helped me immensely with my trading over the years that I have been following this forum. One thing I will say is that I have learnt a lot from these two (and others).

Trading or investing is a very personal thing and successes will come from those that at the end of the day are flexible enough to adjust their systems to where they get the best returns.

Im more of a TA trader these days but there’s a healthy fundamental mix to ensure I can sleep at night.

I will always respect those who are willing to share their most valuable experiances.

[AMR]

For the technical side:

Still in the works, first step is market direction analysis (bull or bear)...my returns have suffered over the last year because I didn't have a system, I relied on my emotions to decide whether it was a bear or a bull market, becoming overly influenced by our friends at the daily reckoning.

Second step is a backtest of entries, still to be done. I need to trust my system.

Third is backtest of exits, still to be done.

For the fundamental side:

Set up asset allocation strategy - Something I can sleep soundly with. I know people here knock diversification but having your portfolio move 2% daily is psychologically better than something which is up 15% in the morning but only up 5% in the evening. Pretty much protects me from a PDZ or URA.

Find small caps only to maximise growth.

Utilise capital raisings as a cheap way to enter stocks for long term holds.

Man I sound like a basketcase, talking about managing emotions.