HOW DO I FIND A GOOD COMPANY?

According to Peter Lynch, it’s staring you right in the face!  Peter Lynch has the philosophy that you know from your experience at work or at home, who provides the best service.  Chances are when you investigate further, you will fine an excellent company behind that superb service.
The best way to find a good company is to look for one.  I know that this statement is trite, but it is also very true.  In the next few chapters you will learn about the NAIC methods for analyzing companies.  One thing will be clear: good companies jump off the page at you.  Let me tell you how these tools work; you’ll get more information as we proceed.

There are some tools that you could use to examine the history of a company and then try to determine if the company will perform well into the future.  These tools were generated by an organization called the National Association of Investors Corporation, NAIC, now branded as BetterInvesting.  The tools are the Stock Selection Guide (SSG), the Stock Comparison Guide (SCG) and the Portfolio Evaluation and Review Technique (PERT).  You don't need these tools to become a successful long-term investor, but they do provide a way to organize information; to have a systematic way to evaluation companies; to compare two companies that are different in size and even industry and to make predictions about future performance of a company in a systematic fashion. 

Once you have an SSG completed for your target company, you then complete SSG’s for competing companies in the same industry.  The SCG allows you to compare a number of companies and select the strongest.  You can then read up on the industry; get analysts reports from the investor relations department of a company; decide for yourself if this is the industry for you.  Time and time again, you will discover than one or maybe two companies stand out in a given industry: they just do things right.  Microsoft stands out among software companies; Southwest Airlines jumps off the page when you look at airlines; if you start in on drug stores, Walgreen has an impressive past; Johnson and Johnson looks like some kind of machine!  McDonald’s has an impressive track record.  I am not recommending any of these companies; I am pointing out that their histories look pretty good.
So, you do the SCG and find a company that you like.  Once you have amassed a number of companies, you have a portfolio.  You manage this portfolio using the PERT.  PERT will tell you when a company is “on sale”: when the share price is lower than it is on average based upon the company earnings.  PERT is a great way to stock up on a company when the world turns against it.  I personally love it when bad things happen to good companies!

You can get ideas from any number of sources: friends at work, at church, at little-league; publications like the Wall Street Journal, Business Week, Better Investing Magazine, &c.; television shows such as the Nightly Business Report; Moneyline, CNBC shows can all be invaluable sources of information and, more importantly, ideas.  All of these sources can be launching pads for further investigation.  Sadly, one of the more enjoyable shows, Wall $treet Week with Louis Rukeyser, is now more.  The great Louis Rukeyser passed away a few years ago.  Check on line too: Yahoo! Finance, the Motley Fool, Seeking Alpha, Manifest Investing and MS Money Central are just some excellent sites to examine.

I think that investment clubs have a particular advantage in this area.  A club usually consists of a diverse group of people with a variety of work experiences.  These experiences can give a club an edge in analyzing a host of different industries.  Learning the structure of an industry, the relationships and leaders within an industry are important.  People who actually work in a given industry often have a head start in understanding it—the structure, terms, competitors, regulatory environment, and so on.  As you become more experienced with your companies, you learn more.  Being part of a club gives you a bit of an edge right at the get-go!