FIN 233 - Five Rules of Successful Stock Investing Quiz

The Five Rules

1. Do your Homework

2. Find Economic Moats

3. Have a Margin of Safety

4. Hold for the Long Haul

5. Know when to Sell

Five Questions to Ask Before Selling

1. Mistake in Original Analysis?

2. Have Fundamentals Deteriorated?

3. Has the Stock Risen Above Intrinsic Value?

4. Is there something Better to do with the Money?

5. Do you have too much in One Stock?

Seven Mistakes to Avoid

1. Swinging for the Fences

2. Believing “It’s Different This Time”

3. Falling in Love with Products

4. Panicking when the Market is Down

5. Trying to Time the Market

6. Ignoring the Valuation

7. Relying on Earnings for the Full Story

Four Steps to Analyze a Moat

1. Evaluate Historic Profitability

2. Identify the Source

3. Estimate the Competitive Advantage Period

4. Analyze the Industry’s Competitive Structure

Four Metrics that Prove a Moat

1. FCF

2. Net Margins

3. ROE

4. Return on Assets

Two Dimensions of a Moat

1. Depth = how much money a firm can make

2. Width = how long it can sustain above-average profitability

Five Ways to Build a Sustainable Competitive Advantage

1. Real Product Differentiation

2. Perceived Product Differentiation

3. Driving Costs Down

4. Locking in Customers

5. Locking out Competitors

Three Filings to Read

1. 10-K

2. 10-Q

3. DEF-14A

Five Areas of Company Analysis

1. Growth

2. Profitability

3. Financial Health

4. Risks / Bear Case

5. Management

Five “Running the Business” Qualities

1. Performance

2. Follow-Through

3. Candor

4. Self-Confidence

5. Flexibility

The 10-Minute Test - 9 Questions

1. Minimum Quality Hurdle?

2. Operating Profit Historically?

3. Consistent FCF from Operations?

4. ROE >10%, with Reasonable Leverage?

5. Consistent Earnings Growth?

6. Clean Balance Sheet?

7. Generate FCF consistently?

8. How much other is there

9. Has Share Count Increased Markedly?