Cheat Sheet with preset for various Trading Scenarious

Generic recommendations for trading scenarious as example for Average Volume, Market Cap, Price and Age/IPO.

Generic Recommendations

  • Average Volume > 100,000 (> 1,000,000 for Options)
    The average daily traded shares over the past 3 months should be larger than 100,000. This lowers the spread and makes it easier to find a seller/buyer in time.
  • Market Cap > $500 million (> $1000 million for Options)
    Nano cap stocks should be excluded to make sure that the share price cant be manipulated with pump and dump schemes.
  • Price > $7
    Penny stocks should be excluded due to various information issues and manipulation of these stocks.
  • Age > 2 years
    At least two fiscal years or 8 quarters of fundamental data (balance-, income- and cash-flow sheets) should be available in order to make proper research.

Warren Buffet / Other

  • Revenue growth > 5%
  • Profit growth > 7%
  • FCF / earnings > 80%
  • ROIC > 15%
  • Net debt / FCFF < 5
  • Debt/equity < 80%
  • RoIC > WACC
  • Charlie Munger: How (this) company could loose? Which risks does it have?

How to identify, if a Compounding Machine is hidden in the earning sheets?

  • Low volatility of margins
  • Pricing power
  • Low Capital Intensity
    CAPEX/Sales < 5% and CAPEX/Operational Cash Flow < 15%
  • Cash Flow Returns on investment (CFROI)
  • Skin in the Game
    Owner & Family > 20% of shares

How to identify a Compounding Machine, if its not in the earning sheets?

  • Moat
    Sustainable, high Return on Invested Capital (ROIC > WACC)
    by recurring revenues, high gross margins and low capital intensity
  • Pricing Power
    Best CAPEX/Sales in Peer-Group
  • Pattern of disciplined Reinvestments
  • Extensive opportunities to reinvest
    Reinvest for organic growth (ROIC > 20%)
    Acquisitions (M&A)
    Share buybacks
    Dividends (= absence of value creating alternatives)