A Contemporary Approach (Cont.)
5. Look for an efficient company. This is one that adds more than a dollars worth of market value to every dollar retained in earnings each year. One dollar in retained earnings should equal three plus dollars in added market value.
6. Study the business and its franchise potential, not just the financial numbers. Is management looking at new and creative ways to exploit opportunity or are they trying to do what everyone else is doing?
7. The important financials to look at are: ROE, Owners Earnings, High profit margins, and the dollar-retained-dollar added test.
8. Calculate the intrinsic value. Can the stock be purchased below the intrinsic value with a significant margin of safety?
9. Is management committed to its shareholders. Look for buybacks with excess cash.
10. Don’t follow the crowd. Buy when the value and discount to intrinsic value warrant a buy.