ExpertDabbler

I was doing some random reading of THE INTELLIGENT INVESTOR (The only book strongly endorsed by Warren Buffet) and i found some guidelines for the defensive investor to pick a stock. Defensive Investor can be defined as who do not want to lose their shirts, pants etc in a hurry.

#1 Exclude small companies

#2.a Current assets/Current liabilities >=2
#2.b Long term debt should not exceed net current assets

#3 Some earnings in each of the past 10 years - not sure what exactly he means here.

#4 Uninterrupted dividend payments for the last 20 years.

#5. Earnings Growth
A minimum increase of at least one third in EPS earnings in the past ten years using three-year averages at the beginning and end.

#6 Moderate Price / Earnings Ratio ubiquitously known as the PE ratio - should be 15 or less.

#7 Moderate Ratio of Price to Assets
Current market price should not be more than 1.5 times of the book value.
OR
the product of PE and CMP/Book value should always be less than or equal to 22.5.

I know there are stocks satisfying #1, #6 and #7. Not sure about #4.

I am not sure an average investor thinks about all these factors before buying a stock.
A cursory look in moneycontrol.com reveals comments like ‘This will touch Rs. 700 in 2 months’.
No wonder people lose when there is a market crash.

On the other hand, i am not sure if there is a stock in BSE/NSE which will satisfy all of these criteria.

Forget Warren buffet, i am wondering if i can make enough money to buy myself a buffet lunch through this

This entry was posted on Friday, February 8th, 2008 at 11:43 am and is filed under Stocks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.