How to select stocks Warren Buffet way? | Stock Sessions

As a Stock Market Investor there's no way that you can look at and evaluate all the publicly listed companies on NEPSE individually however you can narrow this massive number down into a short list of better than average opportunities by looking at specific key ratios.

Let me show you a strategy that has been very profitable for me since I started investing. 

How do you find great investment opportunities?

1. Do you ask around among friends and family?

2. Maybe you should copy the investments of some youtuber or "Guru" with lots of followers ?

 I disagree with both approaches. 

"You can't buy what is popular and do well."

     - Warren Buffett

 I'll soon show you a third option. When investing in a stock market company there are many things that you want to see:

1. Preferably the company should be cheap.
2.  It should be able to pay out lots of money to you as a shareholder.
3. It should be financially stable.
4. It should be growing.
5. It should have experienced and dedicated management.
6. It should have a so-called moat which keeps competing businesses at bay.
7. It should be in a favorable political situation etc.

Where to look for such opportunities?

1. Commodities:

A commodity is a raw material used in the production process to manufacture finished goods, while a product is a finished good sold to consumers.

In this type of business:
- Low profit margin.
-Low inventory turnover.

Let me explain you with example:
Suppose you are a farmer, who have a chicken farm where after every 30-40 days the chicken become fully grown for meat. 

The rate of meat of chicken per kilos is Rs. 350/- with profit of Rs. 100 per chicken.
But when the price of the grain which is needed to feed the chicken increased by Rs. 10 per kilos then the overall profit will decrease.

2. Healthy Consumer Monopoly Type:

Some of these companies on NEPSE are:

1. Advertisement Companies, Magazine Publishers

2. Telecommunications:

3. Cosmetic Products:

4. Banks:

5. Liquor or Beverage Companies:

Questions to be answered while selecting those companies?

1. Can you identify a consumer monopoly type 
    product or service that the company sells?

Eg. Ntc, Hdl, Unilever etc.

2. Do historical Earnings show a strong and upward trend?

If yes then mark it.

3. Is the company loaded with debt ?

No, then mark it.

4. Does the company earn a high rate of return on Shareholder's Equity?

Yes, then mark it.

5. Does the company have to spend a high percentage of it's retained earnings to maintain it's current operations?

No, then mark it.

6. Are retained earnings free to be invested in new business or used to repurchase the company's shares?

Yes, then mark it.

7. Is the company free to adjust prices for inflation?

Yes, then mark it.

8. Will the value added by retained earnings lead to an increase in the LTP/Market Price of that company?

Yes, then mark it.

Where to look for a consumer monopoly ?

1. Business that makes products wear out fast or are used up quickly,

 they have brand name appeal and that merchants have to carry

 or use to stay in business.

2. Communications business that provide a repetitive service

that manufactures must use to persuade the public to buy

their products.

3. Business that provide repetitive consumer services 

that people & business are consistently in need of.

4. Retail stores that have acquired a regional quasi-monopoly

 position selling such items as Jewelery & furniture's.

The Bad news that creates a buying situation.

1. Stock Market Correction and Panics:

2. Industry Recession :

3. Liquidity Crisis

4. Management Issues

5. Structural Changes

Any Questions, feel free to ask below on comment section.

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