Skip to main content
No. of Recommendations: 5
NEW KARB criteria

I made a few changes to Albert's (Phileo) proposal for the KARB portfolio. Hopefully the changes will be acceptable to the group.

Here's Phileo's original KARB proposal:

1) To select 5 stocks that are not in the TMF RB or RM portfolio, and whose combined returns will be superior to NASDAQ:QQQ and the Motley Fool Rule Breaker portfolio returns, starting from Jan. 1, 2001
2) To select "insanely great" companies that have "insanely great" stocks:
THE best of the best companies, cream of the crop of all stocks on the market as of Dec. 31, 2000.
3) To select a stock which meets all 6 RuleBreaker criteria, AND also has the best possibility of becoming a Gorilla / KARM.

BUYING Criteria:
A. The stock must not be in the current TMF RB or RM portfolio. Preferably select a stock has an increasing number of institutional holders.
B. This hybrid GG/RB criteria must be met as follows:
-> a) Top dog, first mover, in an important, emerging industry that is currently in the Tornado (hypergrowth), or is in the early stages of Tornado/hypergrowth growth. (Most of the signs of Tornado formation/growth as laid out in the Gorilla Game FAQ must be met; refer to item #12 in this post:
-> b)Sustainable advantage gained through business momentum, patents, visionary leadership, high barriers to entry, and high switching costs. At least one of the last two factors must be met. Refer to the following post for other metrics in this category:
-> c) Excellent growth metrics:
Point system (maximum points = 8, we would prefer 5 or better)

Relative strength
> 90 --> 2 points
80 - 90 --> 1 point
< 80 --> 0 points
Year over year sales growth
> 100% --> 2 points
80 – 100% --> 1 point
< 80% --> 0 points
quarter over quarter sales growth
> 100% --> 2 points
80 – 100% --> 1 point
< 80% --> 0 points
sequential quarterly sales growth
> 10% --> 2 points
5 – 10% --> 1 point
< 5% --> 0 points

-> d) Clear signs of solid execution by a strong management team; Value chain in place or shows clear signs of developing (eg. alliances, joint ventures, partnerships, signing up distributors, third party developers, and VAR's)
-> e) company products and brand name are well recognized and respected by its customers, peers, competitors and partners in the relevant industry.
-> f) Valuation metrics:

MktCap < 20 Billion (room for it to quadruple over 5 years)
P/E > 100
P/S > 10

SELLING Criteria-
1) Loss of confidence in management (SEC investigations, lying under oath, deceitful etc.).
2) it becomes clear that the stock will never become a gorilla.
3) Another stock in a better Tornado/hypergrowth market and has better growth prospects or fits the buying criteria better than the current stock under question. (The analogy here is the survival of the fittest.)
4) Market conditions have changed such that the original reasons for the decision to purchase the stock (eg. the "buy" report) are no longer valid.
5) quarterly Debt growth > quarterly revenue growth for 3 or more consecutive quarters.
6) Year over Year sales/revenue growth < 20%

CAVEAT: No buying/selling for the sake of doing something for this port.

RB Seminar lesson summaries:

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.