In this due diligence chapter, I explain my answer to the question: how do I invest in stocks? Thus, I explain which investment rules I follow whilst selecting companies for my stock portfolio.
Before I will make an investment in a specific stock, the relevant company must first comply with my preconditions for selecting undervalued stocks. In the corresponding articles, I have outlined the process for determining if the stock actually complies with these preconditions. After I concluded that the specific company does comply with my preconditions, I will analyse the stock further to determine if I will add it to my stock portfolio.
- The Stock Must Be Fundamentally Undervalued – How Do I Buy Stocks – 3 Revealing Ratio’s for Selecting Fundamentally Undervalued Stocks. The answer to the question: “How do I buy stocks?” is twofold. I will limit myself here to the first part of the answer: the 3 revealing ratio’s for selecting fundamentally undervalued stocks.
- Management’s Interest Must Be Aligned with the Interest of the Common Shareholders – Insider Ownership Analysis – Are the Interests of Management and the Common Shareholders Aligned. My insider ownership analysis reveals what I believe is the minimum and maximum share ownership percentage for corporate insiders.
- The Company Must Operate in Relatively Safe Jurisdictions – Country Risk Ranking System – How I Assess My Stock’s Country Risk. To find out how you can use UndervaluedEquity.com’s Country Risk Ranking System (CRRS) to assess your stock’s country risk, I recommend you to read this article now.
If the company complies with all the preconditions mentioned above, it’s time to further assess the quality of it’s assets, management, financial statements, etc. To read more about my detailed stock investment analysis, I refer you to the due diligence chapter: Stock Investment Analysis – A More Detailed Elaboration on How to Buy Stocks.