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I read voraciously, and I read just about every article on the Fool every day. I hear a lot about "due diligence", but after searching quite a bit, I don't find HOW to do this or WHAT it is.

Can anyone offer a clear procedure for going about this task? Essentially what I'm asking is how does one go about evaluating a company/stock--from the beginning to the final decision to buy or not to buy (not to get cheesy w/Will)....

I'd sure appreciate any suggestions.

Marty
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Hi Marty,

Can anyone offer a clear procedure for going about this task? Essentially what I'm asking is how
does one go about evaluating a company/stock--from the beginning to the final decision to buy or
not to buy (not to get cheesy w/Will)....


A good place to look at selection/evaluation techniques is "Common Stocks, Uncommon Profits"-Fisher.

For me it is a process that leads to a lot of dead ends. First I find, through screening, or reading, or conversation a key company or two that seem possible.
Often they are eliminated at the first look at their latest 10k. If not, I look for their competitors and make rough comparisons. Then the survivors are ranked on a spread sheet and assuming that leaves any companies on the list, I do a discounted cash flow analysis.

Most of the time this ends in no candidate that is better than the ones I currently own. If there is still a survivor, I construct a formal folder of facts and key data from 3 yrs 10k and 10Q's along with my intrinsic value figures. I also like to go thru the MD&A looking for successful fulfillment of goals and estimates. The folder(s) go with my current holdings for qtrly up-dating. Even at this stage it is more likely that I won't buy right away. Typical gestation period runs about 6 months for REALLY good probabilities. Many are abandoned in favor of newly researched possibilities.

It takes quite awhile and is still evolving. It FEELS Foolish, to me.

Take a look at the Fools RM Portfolio. That is a dandy way to get started evaluating businesses.

Bruce
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RainMaker2 wrote:
"Can anyone offer a clear procedure for going about this task? Essentially what I'm asking is how does one go about evaluating a company/stock--from the
beginning to the final decision to buy or not to buy (not to get cheesy w/Will)...."


It really depends on what investing philsophy you favor. The easiest strategies are mechanical (the Foolish Four for example), they simply plug into the data and out spits your answer w/o no independant thought going into DD. The other end of the spectrum is the Rule Breaker type of analysis (i.e. where the numbers are weak and future predictions uncertain).

Found this link on the Foolish 8 board, I've found it very useful.

http://boards.fool.com/Message.asp?id=1030012000682000

You don't need to apply it strictly to F8 type of companies, it works well w/ most companies available to the public.

Marv
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