SSIC Stock Selection Criteria

This information was culled from the NAIC book Starting and Running a Successful Investment Club.

• Debt
• Reasonable percent of capitalization?
• Earnings > Debt
• Growth
• Earnings Per Share
• Is earnings growth >= sales growth?
• (indicates company is more efficient at plowing sales/revenue into earnings, more efficient at keeping costs down, etc.)
• Is growth of 1st 5 years >= growth of last 5 years?
• Pre-Tax Profit Margin
• Steady increase in margin = mgmt focused on cost control and increasing margin
• Price and Earnings History
• Don't buy expensive stock for growth
• P/E
• P/E ratios average 15% - 21% in current strong market over 10 years.
• In average market 7-10% over 10 years.
• Sell if P/E is far out of line with high average (like in market speculation)
• 5 methods for calculating low price - Ch. 9, Ch 10 p. 101
• A - best for growing company
• B, C - best for cyclicals
• D - when buying for yield rather than growth
• E - use when market going up after long down trend
• Upside Down Ratio
• 3 to 1 better
• Appreciation
• 100% or better
• Five year potential
• Double in value in 5 years (part 5 of SSG)
• Need 20% per year simple or 14.9% compounded
• Final decision - complete pages 3 and 4 of SSG report

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