These are the top questions I was asked this week by email on investing:
Are stocks too high?
How do I buy US companies?
Surely Apple and Amazon are too expensive?
Is it true the US markets just hit an all time high?
But surely the market will crash with bad economic news?
Yes the US markets hit an all time high. I don’t care to own only UK stocks. As a Briton, I want the best of the world, wherever it may be located. And yes some quality cash rich companies are at all time highs such as Amazon. But the problem is people do not know how to evaluate companies.
All companies should be evaluated on the following factors – and you will be shocked – price is hardly relevant:
Valuation – what’s it worth based on the profits it makes and the rate of growth of its profits?
Growth – are sales and profits growing?
Dividends – how much kickback per share do I get in income?
Performance – on average, what kind of returns does it give?
Risk – how consistently does it give those returns each year in its performance?
Outperformance – does it do better than others in returns?
Cash flow – can it produce cash, after all profits can be manipulated – as we know in Covid, cash and working capital are king.
None of these factors alone is the holy grail and each factors importance varies over time. So I look at all factors and filter for stocks that meet every criteria. You can see why quickly I go down from 8,000 to just 20 stocks. It’s a bit like interviewing for candidates to fill 20 jobs. I want the best – I want Noble Prize winners. I want people I trust with my son’s inheritance.
That’s the right attitude to investing. It’s incredibly important to be educated about investing – take it from someone with degrees in a lot of subjects – investing is the most important thing to learn. You only have to look at the BAME protests to understand that those who don’t invest because they have less capital get punched twice – once because of past wrongs, and twice because of future returns skip them buy.
We have to educate all, especially those at the bottom of the ladder. Investing education is about social mobility.
I am doing free webinars on this – my next one is here: www.alpeshpatel.com/greatinvest
Alpesh Patel
