My investor friends tell me that you should be able to give a three-minute talk on why you're buying a particular stock. I've listened to these guys long enough to understand that three things matter to them. You need to say how the company is positioned generally, how well it's doing its job, and whether its managers are thinking prudently about the future.
So how best to write this up, should you ever be asked to? Simple. First, say what your recommendation is, is one sentence. Follow with three detailed sections, called Position, Performance, and Management. And after all these, write your recommendation again, but this time express it as a rating-perhaps 'low', 'mid-value', and 'high'.
It looks like this:
CONSOLIDATED BINLEYS
Recommend buying, but only below $12
PERFORMANCE
(First, do your reading and have a long, long think about how your candidate company's product line fits with the world economy. Then consider carefully whether the government in your company's country is stable and benign for business.)
The world can't do without binleys. Historically, only breakfast cereal, diaper, and binley manufacturing stocks have risen absolutely reliably, even during wars and big recessions. CB is the only binley manufacturer in the world whose sales are climbing at more than 9% per year (which it's been doing for 4 years now). CB order books stay full because their product line offers specialised binleys for an unusually wide array of industries (underwear, SCUBA diving, telephone sanitation, and insurance forms), and they alone sell to both the commercial and military markets. In their development pipeline is also a scaled-down micro-binley, which should appeal to the gigantic hobbyist market, particularly in developing countries.
Binleys are made from Strombolium. There are only 2 blue-chip Strombolium refiners in the world, and the bigger of these, StrombolCo, with 77% of market share, belongs to Consolidated Binleys-CB has its own never-ending supply of raw material, in other words.
CB and StrombolCo are both Republic of Pottsylvania firms, that operate solely in that country, where raw Strombolium ore is plentiful. The Pottsylvanian economy is as stable as any in the west, currency and loan rates are forecast to change little from their present low levels, and coups, riots, or political racketeering are highly unlikely. Nor will the country be invaded, there being no diplomatic quarrels running.
PERFORMANCE
Price to Earnings: (average, I'm told, is 20%)
Debt to Equity: (20% good; 80% bad, because interest eats profits)
Quarterly earnings:
Chart trends for the year: (and compare these with the Dow, NYSE, NASDAQ, FTSE, and whatever board they use in the Republic of Pottsylvania)
Any change in volatility? (if so, read the news closer and revise 'Performance')
Earnings per share: ($2 is very good, my friends tell me)
Any dividend?
MANAGEMENT
(For this part, go read all the online analysis you can. Google the corporate officers' names, and see what the financial talking heads on TV are saying about them - even the rumors and scuttlebutt, for these aren't generally there for no reason.)
Dave Krankheit, CEO, is continuing his energetic pursuit of..., which paid off so well in the 1990s, when...; CFO Joan Deutschmark moves only when she has the Board's consensus on risk management, a trait which kept CB out of trouble when...; Operations chief Phil Page believes in agile business units that can adapt quickly to..., a tactic that doubled StombolCo's revenue in...
(And now the punchline)
My rating for this stock is...
See? Like any other kind of writing, investment writing can be clear and (I gather) complete. If you know more about investing than I do-which almost everyone does-then of course you should improve this outline. But keep it clear. I'm no investment counsellor, but if I had any money, this is how I'd want to be talked to about my own investing.
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