19 September 2011

How do you define a good stock a.k.a. company?

Today I just met up with one of my friends who is also working in financial industry. What she shared with me about a good company is: 


1. In a Good Industry 


- You are not able to change the whole ecosystem. For example, in stock brokering industry, more people are educated and more IT savvy, and hence it is no way for you to try on traditional way to do the same business. 
- In another word, situated in a good industry in the country that having competitive advantage always give you a better to have a better return in long run. For example in Malaysia, its having competitive advantage in Islamic Finance Sector, Palm Oil Sector, Glove Making Sector and so on while for Singapore, the industry that it has the competitive advantage is in Finance, Offshore Trading, Oil Refining and Real Estate given the stable political system here. 
- In Taiwan, Technology / Hardware Outsourcing is strong here. 
- In Australia, Mining industry is growing there. 
- In U.S.A, Technology (Software) is very strong here. You are able to find thousands of talents working here.


2. With a Good Management - Able to Innovate & Integrity


- In specific, you are also able to perform the bottom-up approach to find a company that managed by a group of good people. We define good management as able to innovate given the changing environment as well as has the integrity to deliver what it promised to its stakeholders on time. 


3. Have Plan to Grow Bigger with Steadiness 


- Again, the company must have the culture with both Aggressive + Conservative characteristic, that it must conservative enough to survive during the hard time and be aggressive enough to grow the business faster when market turns good again. 


Conclusion:


- It is always not easy to determine how a good company is. If you are able to find a good company, please do not try to sell it during the volatility, as you will lose the opportunity cost. For example, Digi recommended Er Ge 5 years ago was just about RM6 and it stands at RM30 now (which is about 5 times). A good company that worth to hold is that, it can grow the profit in consistent way. I will find more companies with above characters and share it with you. 

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