Will 2010 be a very good year for investing in the stock market? Well WATCH OUT FOR MY ANSWER TO THIS QUESTION ON JANUARY 1. Before then, I prepared this for your pleasure. Read on.GOLDEN STEPS TO 2010
There are a number of things to look out for before investing in the shares of a company. The following are some of the things:


1. Does this company have a product or service that no other company in the country has?

2. Can I explain what this company does clearly to a 10yr old?

3. From the current earnings of the company, how long would it take for it to pay of its debt (liabilities)?
The maximum period should be less than 3yrs

4. Do the earnings over the last 5-10yrs show a steady, strong upward trend?
If no for at least the last five years, it doesn’t qualify.

5. Is the company an expert at what it does? Does it dabble in other areas where it has no expertise?
If they dabble, it’s a bad sign. Dabbling involves operating subsidiaries whose business is far removed from that of the main company.

6. Does the company operate a share buy back policy?
Yes is good, no is not so good.

7. Has retained earnings been put to proper use (reflected in EPS increase)?
A consistent increase in EPS for at least the last 5 yrs is necessary. EPS = total earnings/total shares. This can usually be read from the financial pages. BEST SHARES SELECTION GUIDE by F.A Akindipe has summarized the 5yr EPS trend for all the companies on the exchange.

8. What is the company average return on equity?
This should be at least higher that the current inflation rate.

9. Is the company return on total capital consistently high?

10. Can the company easily adjust its product/service price to compensate for inflation?

11. Is a large amount of money needed regularly for research, or equipment update?
Companies that need to spend lots of money in R&D cut down on profits. Simple companies are the best bet.

12. How does the rate of return compare to govt interest rate on bonds?
The highest govt rate on bonds is less than inflation rate. It’s about 14%.

13. Using current average rate of return, make a projection on how much growth to expect.
Use the formula FV= PV ( 1+ i )n
FV= Future Value, PV= Present Value, i=interest rate n=period

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