3 simple but powerful criteria to select stocks

Although a lot do dream of investing for a living, realistically for the larger majority of us, investing is a way to grow your wealth. Today with the power of globalization and technology, your savings just doesn’t appreciate enough to cover the speed of inflation just sitting in the bank and salaries are not rising fast enough that it makes a considerable difference.

Investing in stocks is one of the best ways to make your money work harder for you but majority of people keep away from it because they cannot accept the risks involved. Our view on this is very simple, every investment has risk, it is just how much you are willing to absorb.

Just because your money is sitting in a fixed deposit doesn’t mean it is risk free. With the sub-prime crisis in US almost 10 years ago – I think we safely say, banks as large as they are can also go bankrupt. Its just less likely so people summarize in their heads that because the risk is so small, there is “no risk”.

There will be risk and the better returns you seek, typically the higher the risk you need to accept. So if you can accept risk in investing stocks, below are 3 simple yet powerful criteria you should look at to help you select stocks to invest if you have no idea how to go about selecting stocks.

Market Leader

Once a company grows into a certain dominant position, they will have the staying power and competitive advantage purely due to the resources and business portfolio they have. Take say Google for example. If a company tries to take on Google in the search engine business, they will likely lose. Google has more talent, more money and even in the event a company does make some progress in this area, they will just come in and try to acquire the company like what they did with Waze and Youtube.

Even when the day comes when competition is stiff, they will be able to “burn” cash and resources much longer while waiting for other competitors to fold.

Brand

Perception is a very powerful influence and there is where brand comes in. You could be paying RM99 for a Nike shirt against RM15 for a non-branded one but they could have been produced in the same factory with the same materials and quality. Yet purely just for the Nike “swoosh” sign, you stumped an extra RM85 of profits for Nike.

Barriers of Entry

Businesses that create a high barrier of entry create a environment of lack of competition. Take either Boeing or Airbus for example. The requirements for capital, technology, political backing and talent resources are so high, even the world richest billionaires would have to take substantial risks just to get into the business.

If you know nothing else about stocks, just using either one of these 3 criteria will help you in selecting the best stocks to add into your portfolio. Don’t expect oversized returns but you can expect much better returns than what most other investments provides to you.

It is hard to beat businesses that have the “staying power”, so if you are looking for the closest thing to a “fixed-deposit” in the stock market over the long-run, you’ll find it hard to beat either of these 3 types of businesses.

That said, if you are willing to take additional risks for higher returns, learn more about investing or check out our investing shortlist which is up 351% to date.

Fortune always favours the brave.

Source: https://www.laburlah.com/single-post/2017/04/27/3-simple-but-powerful-criteria-on-selecting-stocks-to-invest-for-growing-wealth

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