June 22, 2024

Dona Abbott

Leading The Charge In [Industry]

How to Buy Cheap and Good Stocks – Guidelines to Investing in Institutional Quality Stocks – Part 2

In part one of this two-part series designed to help you become a better stock investor I focused on the protective shield of companies known as a MOAT. This article focuses on the other important aspect of a winning stock pick – the management of the company.

2. Honesty of management

How do you know whether the management of the stocks is honest? The two criteria include the ability to apologize, to admit having been wrong, and to offer explanations about the correction of the error committed AND accepting a reasonable compensation for all that they have done. Always look for good management of the stocks you wish to invest in, so that you don’t have to regret later. Don’t we all know how irritating a know-it-all management is?

Now we come to the tricky bit. How do we manage to buy cheap stocks of companies with such good characteristics and references? Certainly, or so you may be thinking, there is a cost for reliability and trustworthiness.

I’ll tell you how to invest in cheap, but good stocks. The stocks might come for a lower price because of certain temporary crises which override their advantages. There might be a missing EPS estimate, or the market might even be facing a bear. Such drawbacks (mind you, transient drawbacks) lower the price of such good stocks, and with any luck, you can even hope for a 50{5b0579ddad123e8826b0f99aaf2548fba6b6d6310808b95d99d67897c25a7935} discount. Thus, then, the conclusion is stocks can maintain their good quality despite being cheap, because they are cheap due to not inherent defects, but due to short crises ruling against them. However, the stocks we are talking about here are the ones that (as we discussed) have good MOATs and excellent managements. Many investors commit the grave mistake of investing in certain shares only because they are cheap without looking into the institutional sponsorship of the company. They end up getting stuck with companies that lack institutional sponsorship, endure slow sales growths and plummeting market shares. DO NOT err this way, which is what I’m advising you against.

Remember, the above-mentioned are the worst traits a company could have, when it comes to your buying their shares. Institutions allegedly have research teams that mine out good opportunities, and you must be aware that they invest in huge quantities over time. Do consider looking into their choices for reference, more so if, you find them performing well as far as profit is concerned.

Granted, your prospect of doubling your money by investing in $1 shares is good, but hitting the jackpot wouldn’t exactly be a bad idea. Would it?

I would always advise you to invest in stocks that are institutional quality. Focus on companies that have a sound management and good MOATs. Even if the shares are a bit costlier than $1. Keep in mind the quality of the company you are investing in, and don’t lunge for the cheapest available stocks, because a lack of institutional sponsorship could spell disaster.