Investing: How Simple Can it Be? Part 2

March 16th, 2009

To be a success, an investor doesn’t need to understand the nuances of debt management to see that the company has a long and steady track record of earnings growth. Whether it has accomplished it with leverage—using borrowed funds to acquire revenue-producing assets—or has done it by acquiring other companies, or by extraordinary organic growth is interesting but irrelevant. It’s simply done it! And so long as it continues to do it, it’s a good company to own a part of!

Besides, where can any amateur investor—or professional one, for that matter—get all the information that management has at its disposal?

Much of that information is confidential. Some just comes from managers sharing inside information with their colleagues as part of the daily job. So far as debt and liquidity is concerned, both the lenders and a wary management provide more protection against vulnerability than any outsider could hope to by second-guessing those full-time guardians. And the same applies to operational tools like the inventory control metrics, financial ratios like A/R turnover, and the myriad of other devices management has at its disposal.

No, the concepts for the investor are simple. Buy stock in good quality companies that exhibit the ability to consistently grow their earnings. Pay a reasonable price for the shares. Watch for the one out of five that is going to falter, replacing it before it damages your portfolio’s performance. And expect the one that does better than you expect to keep up your average return. If you do this diligently and conservatively, you’ll double your money about every five years and can do it with minimal attention to your portfolio. This is a better track record than the average professional’s.

  1. No comments yet.
  1. No trackbacks yet.
Clicky Web Analytics