Every investor would love to see the stock they own double in value. But a 100% gain does not happen overnight.
For instance, shares of taxi operator ComfortDelGro Corporation Limited (SGX: C52) have delivered total returns of 200% for investors. But the returns occurred over a period of a decade.
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At the basic level, the example above tells us two things: first, we have to find the right company to buy. Then, we have to have the resolve to hold the company for the long-term, through the thick and thin.
Finding the courage to hold, though, is not as simple as it looks.
Courage, Principles, and Multibaggers
Our analyst team works closely with fellow analysts and investors from our Motley Fool headquarters. One of whom we’ve had the pleasure of working with is Jeff Fischer.
Jeff Fischer has a long tenure with The Motley Fool. He first started writing online for the Fool in 1996. Today, we would like to help you, our fellow investor, with five principles that we have gleaned from Jeff’s decades of writing.
On Monday, we touched on the attractiveness of recurring or predictable revenue (that’s Principle #1). That was followed by Principle #2, which stressed the importance of a long growth runway. Both traits offer a strong starting point.
However, our investment thesis will grow even stronger if the company’s stream of revenue is protected by a wide and deep moat, a favourite term used by billionaire investor Warren Buffett.
Principle #1: Predictable or Recurring Revenue – click here
Principle #2: Expanding Market Opportunities – click here
Principle #3: Evidence of a Competitive Moat, and Financial Resilience
Warren Buffett has said that pricing power is a quality shared by his most successful investments.
If a company can raise its prices and keep its customers, that means it has a competitive moat protecting its profits. That’s another phrase coined by Buffett: competitive moat, or a protective barrier surrounding a business that protects its profit margins and could give it pricing power, whether it raises prices or not.
We want to invest in companies that have a product, brand, service or technology that protects its business from interlopers.
Along with a protected business that assures recurring revenue and profits, we want financial resilience in the form of a strong balance sheet. We avoid companies weighed down by expensive debt, favouring companies that have cash to reinvest, positive free cash flow, and only smart leverage on which it delivers an above-average return on investment.
We are investing for the long haul. We want our companies positioned to thrive and easily withstand downturns.
I’m not going to lie.
From my experience, the first three principles are rare and hard to find. And to take it a step further, separating the great companies from merely the good companies will require an extra kicker.
In our search for the absolute best of the best, we found that Jeff has one more key principle — a “special sauce” — that separates the good from the great. Be sure to check back here tomorrow for the next edition.
Before I sign off, I am proud to share that our stock recommendation service, Stock Advisor Singapore, has uncovered two companies that have delivered 100% returns in less than two years. And these two multi-bagging stocks have Jeff’s principles written all over it.
Their names, including the full research reports, are available inside our flagship stock recommendation service Stock Advisor Singapore. In fact, we have over 30 stocks ready for you to consider buying now.
Click here to find out how you can get access today.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chin Hui Leong does not own shares in the companies mentioned.