How to select stock
How defensive investors select in broad categories of security. A defensive investor should purchase high-grade bonds and follow a diversified portfolio of leading stocks.
The defensive investor has a choice of two approaches: an index-type portfolio and a quantitatively tested portfolio.
1) Index type portfolio – He acquired a section sample of the leading issue, which includes some growth stocks whose shares sell at higher multipliers and less popular and less expensive enterprises.
2) The second choice would be to set standards for each to make sure that
a) Minimum of quality in the past performance and current financial position of the company.
b) Minimal quality in terms of earnings and assets per dollar of price.
Some criteria for selecting common stock
1) Size of enterprise- Selecting the stock size of companies requires excluding the small size of companies total. According to intelligent investors, both companies have not less than $100 million of annual sales and not less than $50 million of total assets for a Public utility.
2)Strong financial condition- There are so many factors to consider. Analyze the companies, but two are important. Current assets and liabilities should be 2:1 current assets twice debt and not exceed twice the stock equality value.
3)Earning stability-Earning should be stable. Same earnings for the past year.
4)Dividend record – Dividend should not interpreted for the 20-year payment continue received
5) The earning ratio price should not be more than 15 years.
6) Moderate ratio of price to assets- The current price of a stock should not be more than 1/2 times the book value of the last repurchase, according to the book of Intelligent Investors. This is the rule of thumb ratio of price to book value should not exceed 22. This requirement for the defensive investors will eliminate you at the majority of stock as a candidate for the portfolio and in two opposite ways on the one hand. They will exclude companies that are 1)too small and 2) in relatively weak financial condition.3) With a deficit sign in their ten-year record, 4)Not having a long history of continuing as dividends, the last two criteria exclusive in the opposite direction.