Wassily Kandinsky, Composition with Blue Background

Investments Strategies

Index Plus a Few Strategy

The Fool 50 Index Strategy

How to choose a mutual fund

How much are the fees?

• Load charge
• Redemption fee
• Annual management fees
• 12b-1

What kinds of returns has the fund delivered for investors in the past?

Rule Maker Strategy

The target is 13-20% annual growth over a thirty-year period on 5 - 20 companies portfolio.

Mastering Personal Finances

• Develop a plan for regular savings (10 - 15 % of your income)
• Erase all credit card debt
• Get the rest of your debt in order
• Hold your portfolio's commission costs under 2% of your total portfolio.

Finding Investment Ideas

• Investing in companies that you (and often everyone else) know.
Those are the companies whose products and services you use.
• Stick with brandnames
People pay more for brand names.
Repeat purchase business
The products people buy repeatedly over and over again. Thus this kind of company has unlimited source of money. Every time you buy the product, the company gets free promotion.

Getting Information on your companies

You need to concentrate on owning businesses and knowing those businesses, while worrying less about today's stock price.

Rule Marker Criteria

1. At least one sustainable competitive advantage -- and the more, the better.
Something that sets apart a company's product or service from the rest of the pack. More specifically, a product or service is differentiated when it is: 1) unique, 2) widely valued, and 3) rewarded for its uniqueness with a premium price.

Brands, trade names, patents, de facto standards, consumer monopolies, and superior distribution systems are just a few examples of sustainable competitive advantage.

The competitive landscape is far more than a company's head-to-head rivals. Competition also potentially includes any powerful buyers and suppliers, the threat of new entrants, and the threat of substitute products.

2. Great management of unquestionable integrity and with a track record of excellence.
When making an investment, no matter how much research you do on a particular company, it's just plain impossible to know everything. Therefore, the best way to minimize the risk and maximize the opportunity of what you don't know is to buy a company with best-of-class management.
3. Expanding possibilities that will allow the company to have a future that's sweeter than the present.
We look to invest in companies that can double their value every five years. That's why we look for companies to grow sales at 10% each year, with the hope that increased efficiency will translate into about 15% growth in earnings, on average, over time.
4. Annual sales growth of at least 10%.
Sales growth(revenue) is the most fundamental indication of an expanding business. While net profit growth is important too, it can be the result of cost-cutting measures rather than pure business growth. Using a company's income statement, simply divide the current year's sales by the previous year's sales and subtract one.
5. Gross margins greater than 50%.
This is a reflection of how expensive it is to manufacture a product relative to the price at which it can be sold. Gross margins are defined as the gross profits (sales minus cost of goods sold) for a period divided by the revenues for the same period. Gross margins = (Sales - Cost) / Sales.
6. Net profit margin of at least 10%.
The calculation is net income (after all expenses that include taxes, the marketing and administrative expenses, etc.) divided by sales. So, simply divide the bottom-line earnings(from balance list) by the top-line sales to figure the net profit margin.
7. Cash King Margin greater than 10%.
The calculation here is free cash flow divided by sales. The advantage of measuring profits with free cash flow is that cash flow isn't as easily manipulated as net income. . First off, we start with net income (or loss) from the income statement, which always appears as the top line of the cash flow statement. Next, we add back any non-cash expenses, of which depreciation and amortization is the largest. Last, we finish up by adjusting for the changes in current assets and current liabilities. What we're left with after we've adjusted for these items is operating cash flow. The final step in arriving at free cash flow is to simply subtract the "additions to property and equipment."