How to pick shares for the future

TL;DR

To pick shares for the future, Richard Bedard looks for strong companies whose market valuations appear inexpensive and whose competitive advantages can last. His decision engine ranks about 50 companies using financial models, measures such as earnings yield and price-to-book, and his own business analysis. Green highlights attractive candidates, while diversification helps manage uncertainty. Read on to understand the complete selection process.

Transcript

today I am talking to Richard Bedard he's interactive investors very own share sleuth I like to think of him more as a forensic analyst he's been ripping apart balance sheets company accounts for years he knows how to do it does incredibly well he runs the share sleuth model portfolio and has invented a decision engine which makes investing simple ... Read More

Key Insights

• 🥳 Share prices are not the main factor in Richard Bedard's investment decisions; he values other metrics like price-to-earnings ratio and earnings yield.
• 💁 Bedard's decision engine helps him visualize and assess companies based on their financial information and market valuations.
• 👋 Bedard looks for companies with sustainable competitive advantages and good valuations to include in his portfolio.

Questions & Answers

Q: How does Richard Bedard pick shares for the future?

Richard Bedard seeks companies that he believes can remain strong for a long time and are available at good valuations. He combines financial information, market valuation measures, and his judgment about each company’s lasting competitive advantages.

Q: Why does Richard Bedard largely ignore share prices?

A share price alone does not reveal whether a company is cheap or expensive because it must be compared with what an investor receives. For a long-term investor, Bedard considers price relevant only when it helps assess the company’s value.

Q: Which valuation measures does Bedard use?

Bedard mentions the price-to-earnings ratio, earnings yield, and price-to-book as ways to judge a company’s market valuation. These comparisons provide more useful information than looking at the share price by itself.

Q: What is Richard Bedard’s decision engine?

The decision engine is a giant spreadsheet that helps Bedard visualize his opinions and apply financial rigor. It contains about 50 companies, with a separate sheet and simple financial model for each one.

Q: What information goes into the decision engine?

Each company model includes important financial information, such as indebtedness and profitability, and calculates the market’s valuation of the business. Bedard also adds his judgment about whether the company’s strengths can endure over the long term.

Q: How does the decision engine rank companies?

The summary page ranks companies using Bedard’s assessment of their quality together with their valuations. Companies he considers good and cheaply valued appear near the top, while expensive companies or those in which he has less confidence appear near the bottom.

Q: What do the decision engine’s colors mean?

The spreadsheet works like a traffic light: highly ranked companies are green, middle-ranked companies are yellow, and lower-ranked companies are red. Valuations become greener as shares get cheaper, while red can indicate expensive valuations or concerns about company quality.

Q: Does a green ranking automatically mean Bedard will buy a company?

No, Bedard does not necessarily select the number-one-ranked company or buy every company flashing green. He aims to diversify because he is not completely confident in his own judgment, and the existing portfolio approach considers roughly the top 15 companies with good valuations.

Summary & Key Takeaways

• Richard Bedard does not focus on the FTSE 100 or share prices but instead uses other metrics to evaluate company value.

• The decision engine is a spreadsheet that ranks companies based on financial models and Bedard's judgment of their long-term potential.

• Bedard looks for companies with lasting competitive advantages and good valuations, and he diversifies his portfolio to reduce risk.