dimanche 9 juin 2019

How I approach growth

My approach to growth is simple.

First, I'm looking for predictable stocks via Value Line. If a stock has a weak predictability (under 75% for instance), I usually look elsewhere. There's a few exceptions to that rule, but I usually respect it.

Then, the projected growth. I usually use Yahoo Finance for that metric. 

I'm looking for stocks with an estimated growth of at least 10% per year for the next 5 years. Actually, I'm mostly inclined towards stocks with an estimated growth around 15% per year.

How come should we believe that estimated growth? By looking at the growth for the last 5 years. I know it's absolutely not scientific, but it shows us the trend. If the annual growth over the last 5 years has been 5% per year and the estimated annual growth for the next 5 years is around 15%, I usually don't believe it. It means that the stock will do three times better in the near future than what it did in the recent past. It's possible, but highly improbable. 

I prefer stocks with a past growth close to future growth. And if the predictability on Value Line is high, it's fairly probable that the estimated growth will happen. 

Of course, it's a quick explanation of how I work. There's some details missings, but it's close to my mental path. 

That's why I don't buy stocks like Amazon (very high growth but very low predictability) and why I buy stocks like Google (good growth and very high predictability). 

7 commentaires:

  1. Do you have to pay for Value Line?

  2. Can you elaborate on how you get the predictability info from valueline for free? I'm looking on the site and the free option does not provide this info. Thanks

  3. I also use valueline. I heard about after reading Warren Buffets interpretation of financial statements. I use their screener as well especially their price stability and earnings predictability scores (look for both over 75). I generally prefer my growth companies to be less volatile.

  4. There's a governemental organization that offers an access for free to Value Line for quebecers.

  5. How is it working? Bibliothèque Nationale du Québec?

  6. Oui, avec la BaNQ. Crées toi un compte et accèdes aux services en ligne. Tu pourras aller sur Value Line.