Question: Signe, what is your first steps when finding a wonderful company to invest in?

I got this question the other day via private message on Instagram and the post quickly got traction (compared to other posts I've shared), so I thought it would be valuable to share here on the blog too.

Question: Signe, what is your first steps when finding a wonderful company to invest in?

1. I find the company because it’s: 

  • a product I love to use, 
  • it’s a service which delights me 
  • or a tool (physical or digital) I prefer use at work 

I check if the company is publicly traded. You find this information by simply searching the product name to find out which company produces it (or if you already know, search for the company name) as well as the search term "publicly-traded company". The result will show you wether or not the company offers shares to the public.

2. I calculate how many years it will take the company to pay off its long term debt. If it will take the management more than 3 years to pay off the long term debt, I don’t move on with this company. 

The way to calculate debt to earnings ratio is to take the company's net income (found in the annual report income statement or ex. on Yahoo Finance) and minus the long term debt (found in the annual report  balance sheet or ex. on Yahoo Finance). Sometimes this number can be found on Yahoo Finance so you don't have to calculate it - I personally prefer to calculate it myself.

3. I use my checklist to investigate if I understand the business and if it’s truly wonderful (free copy can be downloaded on the link above). I go through my checklist to find out if the company consistently delivers great results (for the past 10 years) and I check to see if the price of the stock is fair or if it’s overvalued. 

Right now many publicly traded companies are overvalued, so I have to wait buying until the stock is at a fair value.

4. If I understand the business model and the company is a truly wonderful winner in its industry and if the price is fair - I invest in the company!

This video clip from a Warren Buffett documentary might inspire you like it inspired me. There are thousands of companies out there, but you should only invest when ever you come across a "winning pitch" - a wonderful company.



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