I find it much easier to see and understand graphs and lines rather than a row of numbers next to each other. I have to admit that my investing techniques still needs work. So in an effort to iron out some kinks, I will now implement a spider chart (Excel calls it a radar chart) when I analyze companies.
Here is an example. Note the difference between AeroGrow (AERO) (one of my many mistakes) and Coca Cola (KO).
See what I mean? There is a big difference between looking at notes and thinking about the business and actually receiving a visual representation.
Ratings and Metrics Explanation
The scale is from 0 – 5 where 0 is the worst and 5 is the best. Obviously, the bigger the area in the graph, the better.
A brief definition of the metrics used:
- Best – 5
- Good – 4
- Average – 3
- Below Average – 2
- Bad – 1
- Worst – 0
Under Valued: 5 is extremely undervalued and 0 is overvalued. KO has a fair value so it is 3 for average.
High Growth: 5 is high growth and 0 is no growth. I would say KO has an average to below average growth rate.
Low Risk: 5 is close to no risk and 0 is high risk of losing money. Risk could be in the form of one major customer, high debt, high inventory, unpredictable margins.
Well Managed: 5 is excellent company management with 0 being sleazy managers (Enron, Worldcom)
Good Financial Health: 5 is a company that generates excellent cash and strong balance sheet. 0 is a company with huge debt, overly issuing stocks etc.
Strong Moat: 5 is an impentratable moat with 0 being nothing more than a trickle.
(I think there was little confusion with the graphs by a couple of people. These are just my metrics. The whole point of the graph is to remind myself how I saw the company at that point in time. Just because it may be 90% undervalued, doesn’t make it a good investment. All aspects have to be considered and this is just a reminder not an indicator.
So far, I only have 6 metrics but I may add more if I think they are necessary.
Also, the metrics are what you make it. Everyone has a different perception of risk, health, moat etc so the point is to hopefully bring up ideas which could help you in your own analysis.
Take everything I do and say with a grain of salt.)
Disclosure
No positions in stocks mentioned at time of writing.
[tags] aero, ko, stock analysis[/tags]
