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Intelligent Investor: Chapter 19

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Hello friends, in today’s article we see chapter 19 of the intelligent investor book. In this chapter, the author gives us the relationship between shareholders and management. so let’s see chapter 19 of the intelligent investor book.

intelligent investor: Chapter 19

Shareholders and management:- Intelligent Investor: Chapter 19

When you make an investment, the most important part is management. If your management is wrong then they will lose your money. So if you want to good investment, then you have to check the management is honest with skillful.

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How to Evaluate Management:

following are some pointers that help you to evaluate management

  • Shareholders should realize that they are the owners of the company: The author says, so many people make investments but they don’t think, they are the owner of the company. And they have the right to fire any mismanagement. they will do anything that helps the company with management. (Intelligent Investor: Chapter 19)
  • Two questions shareholders should ask: To get good management, shareholders must ask the following questions.
    1. Is management reasonably efficient?
    2. Are the interests of average outside shareholders receiving proper recognition?

Answering the above question you get the following answers

Ans(Q.1): to get the answer to these questions, you can get on the financial statement. Annual reports and you have to see the targets of the company. If the target is completed in previous years, and the company goes through that direction which is promised to investors. (Intelligent Investor: Chapter 19)

Ans(Q.2): To get the second question answers you have to read the Proxy statement. In this statement, you get the all information about the management and the company gives which type of recognition to management. So management is the core of investment and in this part, you have to check with your all knowledge and common sense.

So the author gives us some important points to analyzing annual reports and management, they are as follows.

While analyzing annual reports:

  1. Never dig so deep into the numbers that you check your common sense at the door: So many investors read the annual reports. And make the calculations on that process. they forget the main reason behind that calculation. They miss the common sense approach. (Intelligent Investor: Chapter 19)
  2. Always read proxy statements before and after you buy a stock: If you read the proxy statements you get the main information about the management and company contract. If your management only thinks about himself they get the benefit from the option, and they dump so many shares of the company. If they only think about building a big company, for this purpose they take the so much dept. so read the proxy statement before investment.

After this, the author said, ” stay away from the daddy-knows-best attitude.” In this case, the daddy is indicating to the management. so management is only working for you so you have all right about your company.

This is all about the shareholders and management in chapter 19 of the intelligent investor book.

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Intelligent Investor: Chapter 11

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Hello friends, in today’s article we discuss the Security analysis for Lay(common) Investors i.e chapter 11 of the intelligent investor. In chapter 11 of the intelligent investor, Benjamin gram gives us the Four elements to consider for buying stocks. That element as follows

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Intelligent Investor: Chapter 11
 

4 Element to make decisions:-Intelligent Investor: Chapter 11

  1. Company’s general long term prospects
  2. Quality of its Management
  3. Financial strength and Capital strength
  4. Dividend Record

let’s see one by one

Companys general long term prospects:- Intelligent investor: chapter 11

to know about the company you have to ask two sentence

  1. How did the company grow?
  2. Where to come profit?

and also check the company’s acquisition and also OPM(other people’s money). If a company depends on other people’s money and they acquire other companies. This type of company does not grow well in the future, and If it depends on other people’s money, they are taking the debt on the company. Also, check the customer range of the company. if the customer is less or minimum then don’t buy the company. (Intelligent Investor: Chapter 11)

If the customer is more and maximum, then that is a good sign. Also check the good competitive advantage like coca-cola, Gillet, etc. Check the net income of the company and revenue with constant earning increases over the past 10 years. 10% is good constant earning before tax and after 7% is good.

If a company invests in Research and Development, for the future product that is a good sign for the company. Most important if the cash flow operating is negative consistently and cash flow of financing activity consistently positive then leave the company. Because this type of company taking the debt on the company. (Intelligent Investor: Chapter 11)

Quality of its management:

Management is the core of any company, so you have checked the management.

Management should be honest and complete the promises of investors and customers. you can see the company record of management and his promises, and also they are accepting the mistake and take the responsibility to handle it. And also check the stock issues, If the stock goes higher and goes down quickly is a bad sign, management has to maintain the P/E ratio. That ratio is not more than 16. (Intelligent Investor: Chapter 11)

Financial strength and capital strength:

each and every company requires finance, so you have to check finance also. for this you can do this.

You can check the Owner earning, this may be 6-7% increases consistently. also, check the Debt to equity ratio, this ratio is 1 not more than that. And you have to include in-dept called as preferred stocks. and also check the Interest coverage ratio, this may be 4 is a good sign. (Intelligent Investor: Chapter 11)

Dividend Record:

If you want to make an investment, in the long term by using compound interest. Then you have to check the dividend record. If the company has the computation record then you check the company outperformance from the computation. If this is not happening then the company wastes the investor cash, this type of company has to give the dividend. (Intelligent Investor: Chapter 11)

You have to check if the company doing the publicity of the stock split, then this type of company fools the investor and wastes the money of the investor. if the company buys back the share is a good sign of the company when they are cheap. if a company buys shares at is a higher price then they waste the money. Check for the dilute diluting if this happens stop this.

If you check these 4 elements of security analysis. you get good company,

This is all about the Security analysis for common( lay ) investors.

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