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The Seriously Hip Investment Club, in an effort to more clearly define its goals and actions, has established criteria for buying and selling club-owned stock. The list of requirements below is intended as a solid base of information for making sound decisions, and not a comprehensive manifesto.
Criteria for Buying Stock
- The Seriously Hip Investment Club, formed under the guidelines of the NAIC uses NAIC's Stock Selection Guide (SSG) computer software to evaluate and monitor current and future stock acquisitions. Data obtained should be as follows:
- Zoning is in the "buy" range.
- Upside-down ratio is 3 to 1 or better.
- P/E is projected to be below average for the industry.
- Relative value of 100 or less.
- Beta is between 1 and 1.2 or -1 and -1.2.
- Financial rating is B+ or better.
- The company (stock) is to have long-range potential. This is debatable by Club members with the use of company information, press releases and articles, market and industry analyst reports, as well as any other materials germane to the issue.
- Long range earnings and sales of the company (stock) will be in the double digits.
- The company (stock) has received positive press.
- Company management is clearly in control of any problems. Again, this is debatable Club members, using the previously mentioned materials.
- Debt is no more than one-third of total capital.
- The stock's market price is at the lower end of the 52-week price range. This is between the 52-week low and 50% of the total 52-week price range.
- The company is planning on or beginning to implement international expansion.
Criteria for Selling a Stock
- The company (stock) has no potential growth. Information repressing this notion should be obtained and brought before the Club.
- The P/E ratio is above average for the industry.
- Growth rate does not reach its level within one year.
- Market, or Club, confidence is lost in the company (stock).
- There is sufficient and credible information showing adverse management practices.
- The company (stock) is facing severe competition within or without its industrial segment.
- The SSG computer software place the company (stock) within its sell range.
- The company (stock) scales back operations to become dependant on a single product or customer.
- The whole industry - in which the company (stock) is categorized - begins to experience a downturn expected to be more than just cyclical.
- Another more profitable company (stock) has piqued the Club's interest and has no other financial means than to sell a less profitable asset.
Summary
The buying and selling of stock is critical to the success of the the Club. This criteria for stock acquisition is updated as Club members feel items become irrelevant or outdated. The evolution of this working document is to the advantage of the Club and its members. It is meant to keep current and future actions from extreme departures. As Club members grow in knowledge of the market system, it is expected that this document will become more complex and thorough. Again, these requirements are intended as a solid base of information for sound decision making; they are not intended as an all consuming manifesto.
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