Have you ever wondered, “How do I find the best companies to invest in?” In this article, I will cut through the jargon to help you with a strategy for finding great companies to invest in.
How To Find The Best Companies To Invest In
One of the proven ways to find the best companies to invest in is searching for companies that have increasing quarterly earnings. The best companies exhibit accelerating earnings, meaning they have continual percentage increases in earnings per share every quarter.
Video: Finding The Best Companies To Invest In
Why do we do business?
Although this is partly a philosophical question and almost ridiculously simple to answer, this is a key question that leads us to the main point. In the beginning, we had a system of bartering, where you may have exchanged four goats for one cow or one child for a flock of sheep. However, as the feudal system crept into society, along came money, made from gold by the King himself.
With the concept of money came the concept of profit
Although business today has obligations to its employees, customers, communities, and even the environment, it is essentially there to make money, and if it has shareholders, they get to share it. So, although it sounds callous to talk about money, the main and distinctly most important measure of any company is its ability to make money.
What are the Measures?
- Revenue– the amount of money that went into the cash register of the company (before taxes and expenses)
- Profit Margin– the percentage difference between Net Profit (after-tax) and Net Sales
- Earnings – earnings are the revenue minus the expenses
- Earnings per Share(EPS) – EPS is the company’s total earnings (after tax) divided by the total ordinary shares outstanding.
Ignore the Meaningless Financial Jargon
If there is one industry full of statistics, theories, superstition, and 95% personal opinion, it is the Financial Industry, especially when it comes to investments and even more so when it comes to stock analysis! If analysts on TV are not talking about the Debt to Asset Ratio or the amount of Short-term Debt, it is the Current Ratio or even the Book Value.
I even saw in a very popular “investor” newsletter a recommendation for a company called APD. Amongst its impressive statistics were a five-Year Estimated Earnings Growth = 2%.
2% earnings growth, would you want to invest in that?
The key fundamental factors about stock selection are detailed in the Liberated Stock Trader PRO Masterclass Training, but for now, remember this:
- Companies that are making buckets of money (Revenue or Earnings) are usually good companies.
- Companies that are making more money this year than last year are usually good companies.
- Companies that are making more money this quarter than the same quarter last year are looking even better.
- Companies that are making jumps in earnings that are larger percentages than the previous period are GREAT COMPANIES.
Quick Tip: “Only buy Quality Stocks; I want to win. Therefore I buy only Winners.”
This seems like ridiculous advice, right? It seems so simple, but it is so important.
But how do we buy more winners than losers? A good friend of mine from university, let’s call him “Jonny,” used to say on the rare occasions when he beat me at Joe Madden Football on the Sega Megadrive…
“Can you smell something?… what is that?… oh yeah… the smell of a winner.”
So how do we smell a winner? Before I go any further, I will let you stop me here. “Why should I listen to you?“ I hear you cry. Here is my answer:
Do not listen to me!
Listen to what YOU feel makes perfect logical sense.
Listen to your wife, husband, or partner; they are important people.
Listen to one of the most respected men on Wall Street.
One of the finest books I have read on the topic of investing has to be, without a doubt, How to Make Money in Stocks, by William J. O’Neil.
I am not trying to sell you this; this is one of the best investment books of all time, selling over two million copies. Also, the author is the creator of the daily U.S. investors’ newspaper, Investor’s Business Daily.
Anyway, to quote from Mr. O’Neil’s Book:
“The percentage increase in earnings per share is the single most important element in stock selection today.”
“My study of thousands of the most successful concerns in America proved that virtually every corporate stock with an outstanding price move showed Accelerated Quarterly Earnings increases sometime in the previous 10 Quarters before the towering price advance began.”