The 12 steps to investment success – MoneyWeek

Tofindsuchfirms,Iask12straightforward,possiblynaive,questions:Istheresufficientpotentialinthemarkettoallowasizeableincreaseinsalesforthenextfiveyears?

Whatcouldhappenafterthat?

Whatisthefirm’scompetitiveadvantage?

Isthiscompany’speoplebetterthanthatofitscompetitors?

Ifso,why,andatdoingwhat?

Arethemarginsworthwhile?

Willtheyriseorfall?

Howiscapitalallocated?

Isthestockattractivelyvalued?

Whydoesn’tthemarketunderstandthis?

Whatwouldmakeussell?

Whatfurtherresearchisrequired?

SowhatsortofstocksdoIlikenow,havingappliedtheabovecriteria?

Somethemesstandout。

WhileIhaveanumberofoilstocks,mainlyonesthatarereserve-richandoffthebeatentrack,Idon’tholdanyWesternmajors,suchasBPandShell。

However,IdoholdCNOOC(ChinaNationalOffshoreOilCorporation,ticker883,HK$4。

20),Brazil’sPetrobras(PZE,$10。

80)andRussia’sLukoil(LUKOY,$126。

5)。

Theseareallproducerswithproven,andinsomecasespossiblyunderstated,reserves。

InEurope,manyofthefirmweholdownbrandsthatcoulddowellinChina:Porsche(POR3,e490。

20),Hermes(RMS,e150。

40)andTiffany(TIF,$28。

30)。

ForTiffany,theindustrybackgroundisgood:theUSjewellerymarkethasgrownat6%ayearoverthelast20years,andthereispotentialforTiffanybothinmetropolitancentreswhereithasnopresenceandintheexportmarket,notablyChina。

Ithasanenormouslystrongbrand,strongmanagementandoperatingmarginsinthehighteens。

Italsotradesonarelativelyundemandingmultiple。

Therearesomewell-known“worldleaders”inourportfolio,especiallyinthetechnologyfield:Canon(JPY,¥5,060。

00),Vodafone(VOD,136p),SAP(SAP,e129。

70)andMicrosoft(MSFT,$27。

90)。

Conversely,thereareanumberofstocksthatothersmightjudgedull,butwethinkaregreatlong-termgrowthfranchisesintheUS:MTBank;GoldenWest(GDW,$114。

16);Wrigley’s(WWY,$63。

32);MohawkIndustries(MHK,$84。

25);andPattersonDental(PDCO,$37。

01)。

Ontheothersideoftheworld,IliketheZhejiangExpressway(576,HK$5。

10),whichoperatestwomajortollroadsintheZhejiangprovinceinChina。

Thisareaisseeingrapideconomicgrowthandacceleratingtrafficgrowth,70%ofwhichiscurrentlycommercial,butrisinglevelsofprivatecarownershipwillbeasignificantfactorincomingyears。

Thefirmshouldbenefitfrombothincreasedtrafficonitsexistingroadsandfromtheextensionofitsnetwork。

Thisisanopportunitytoinvestinaquasi-monopolyoperatinginafriendlyregulatoryenvironmentinaregionofstronggrowth。

Thestocksrepresentaneclecticbag,butthebottomlineisthatthecompaniesthemselvesarethecoreoffuturegrowth。

Asafundmanager,Icangrapplewiththis。

WhatIfindmoredifficultischoosingmarketsbytakingatop-downview。

Thereisjusttoomuchdata,toomanyuncertainties,toomanyvariablesandtoomanyinterdependentfactors。

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