Every time I’ve been strict about following these requirements, I’ve made money. It’s true 100% of the times.
Other times, I’ve lost money.
Apply these requirements to your investment selection process, and see how it works for you.
Also, I apologize for the ruthlessness of the following sentences. These are absolute necessities for my investing methodology. Any leeway is these matters is inconceivable.
I require my investment to either produce a product, or deliver a service.
When a business produces a product, or delivers a service, the value of the business is no longer hypothetical. It relies on the quality of the product or service delivered. This requirement automatically eliminates all commodities and cryptocurrencies from my radar.
I require the business to be profitable before I invest in it.
Companies that continue losing money for more than 5 years after inception in the name of growth, do not interest me. The senior management in such businesses is made up of incompetent folks.
I require the business to be self-sustainable.
The business has to operate on little to no debt. Businesses that heavily rely on debt for its operations do not deserve a place in my portfolio. As soon as the river of debt dries up, the operations take a nosedive in such businesses.
I require businesses to have increasing revenues and higher profit margins.
Combination of these two factors fortify a business. It gives it a moat. Longer the sustainability of this moat, better the business.
I require the business to be on extreme sale before I invest in it.
When a high-quality business is being offered at a significant discount compared to its intrinsic value, the odds of losing money are almost non-existent, and odds of making money are greatly in my favor.