What are you doing that your competitors aren't doing yet?
True Scuttlebutt definition:
To find someone who is sufficiently skilled in the various facets of management to examine each subdivision of a company's organization and by detailed investigation of it's executive personnel, its production, its sales organization, its research, and each of its other major functions, form a worthwhile conclusion as to whether the particular company has outstanding potentialities for growth and development.
How to do scuttlebutt:
Go to five companies in an industry, ask each of them intelligent questions about the points of strength and weakness of the other four, and 9 times of out 10 a surprisingly detailed and accurate picture of all five will emerge.
You can also ask both vendors and customers about the real nature of the people with whom they deal. For example, research scientist in universities, in government, and in competitive companies are another fertile source of worthwhile data. So are executives of trade associations.
Former employees are also a great source of information. They usually have real inside view of the companies in terms of strengths and weaknesses.
15 Points to Look for in a Common Stock
- Does the company have products/services with sufficient market potential to make possible a sizable increase in sales for at least several years?
- Does the management have a determination to continue to develop products/processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
- How effective are the company's research and development efforts in relation to its size?
- Does the company have an above-average sales organization?
- Does the company have a worthwhile profit margin?
- What is the company doing to maintain or improve profit margins?
- Does the company have outstanding labor and personnel relations?
- Does the company have outstanding executive relations?
- Does the company have depth to its management?
- How good are the company's cost analysis and accounting controls?
- Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition? (Moat or the edge advantage). Dependence on patent or copyright protection is a sign of weakness than strength.
- Does the company have a short-range or long-range outlook in regard to profits?
- In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?
- Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles and disappointment occurs?
- Does the company have a management of unquestionable integrity?
The 5 Influences on Stock Price
- Interest Rates
- Governmental attitude toward investment and private enterprise
- Long-range trend to more and more inflation
- New inventions and techniques
- Business cycle
When to Sell?
3 Reasons to Sell
- When mistake has been made in the original purchase and it becomes increasingly clear that the factual background of the particular company is, by a significant margin, less favorable than originally believed.
- No longer qualifies in regard to the 15 points outlined above.
- When you find a better company with a better growth. (which usually doesnt happen)
The Hullabaloo about Dividends
Usually a great company pays little to no dividends at all as the retained earnings are used for further expansion (growing the business).
The act of paying dividends does make the stock more attractive but does not necessarily mean that it is the most beneficial for the stock holder.
Sign of poor retained earnings usage:
- management piles up cash and liquid assets far beyond any present or prospective needs of the business, it does not benefit stockholders at all.
- Enlarge the inefficient operation to get a subnormal return on capital
Far more of those stocks giving a bad performance price-wise have come from the high dividend-paying rather than the low dividend-paying group.
10 Don'ts for Investors
- Don't buy into Promotional Companies or IPO
- Don't ignore a good stock just because it's traded "over the counter"
- Don't buy a stock just because you like the "tone" of its annual report
- Don't assume that the high price at which a stock may be selling in relation to earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price
- Don't quibble over eighths and quarters
- Don't overstress diversification
- Don't be afraid of buying on a war scare
- Don't forget your Gilbert and Sullivan
- Don't fail to consider time as well as price in buying a true growth stock
- Don't follow the crowd