February 1, 2012

My Stock Selection Criteria

Stock Selection Criteria
Referring to the previous article on my investment philosophy, I focus my stock investment on high growth dividend stocks that yield at least 5% p.a. as well as REIT stocks. To further narrow down the list of investment grade stocks, I will highlight the criteria that i use to filter through the stocks in this article.

One resource that i use extensively in my quest to find my investment grade stocks is Stock Performance Guide from Dynaquest. This book provides segmental information, corporate structure, business activities, latest developments and future prospects of listed companies in Bursa Malaysia. It also contains investment and financial statistics data about each listed company. The data that i most commonly use from this book is Dynaquest rating and 5-year dividend yield range. You may get this book from here or any other major book stores in town.

Based on the guidance of my stock investment philosophy, I will then filter through the investable stocks using custom stock selection criteria:
  1. Selected stocks must have Dynaquest rating >= 6 AND
  2. Selected stocks must have average 5-year divided yield >= 5% p.a. AND
  3. Selected stocks must have market capitalisation > RM 300 million AND
  4. Selected stocks must have grading of >= 9*, as advocated in Infinite Wealth by Lai Seng Choy.
The stock grading system advocated by Infinite Wealth is based on the following criteria:
  • Turnover
  • Net profit after tax
  • Net profit margin
  • Cashflow from operation
  • Cash ratio
  • Average net dividend yield
  • Average ROE
To know more about this stock grading system, you may contact the author here or you may purchase it in any major book store in town.

Based on the criteria i set above, I will have a watch list of investment grade stock based on my stock investment philosophy and criteria. I will review this watch list annually and monitor the price movement to determine a suitable price range for purchase. I'm still trying to find out the best way for me to determine the entry point for the stocks in my watch list.

So, if anyone has any suggestion on how to find a good entry point for a stock or want to comment on this article, you are most welcomed to drop some comments or suggestions.

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