What Is a “Good Company” for a Long-⁠Term Investor?

Most investors are looking for a “promising” company. But the problem is that long-⁠term potential is a forecast. A good long-⁠term portfolio is built not on forecasts, but on the quality of the business.

To assess the quality of a company’s business, we analyze its actual results over the past few years rather than making assumptions about what will happen in the future. One of the hypotheses on which our method is based states:

“By selecting good companies based on their past financial reports, we assume that they will continue to be good for some time to come - whether that time is long or short. This hypothesis is based on the fact that a company’s business changes rather slowly - both in terms of improvement and in terms of deterioration of that specific business.” (More on the hypotheses here: (https://avistocks.com/4-%d0%b3%d0%b8%d0%bf%d0%be%d1%82%d0%b5%d0%b7%d1%8b/ )

Here are our main criteria for selecting stocks:

The company generates stable earnings

Revenue growth. Profit growth. Is profit growing faster or slower than revenue? Not just one successful year, but years of stable profits - and steadily growing ones at that.

We analyze a company’s earnings over a 10-⁠year period. If profits are all over the place, it’s not a business - it’s a lottery.

Competitive advantage (MOAT)

Why will the company still have its customers in 5 years?

• brand
• technology
• scale
• network
• high switching costs

Without this advantage, profits are unlikely to be stable.

Company profitability

On average, the profitability of U.S. publicly traded companies is about 3%. A 3% profit margin can quite easily turn into a 1-⁠2% loss. You’ll feel much more confident if your company’s profit margin is 30%. Even if such a company’s performance takes a turn for the worse, it will be many years before losses materialize, and you will have time to react. Typically, such high profitability indicates a “Wide Moat.”

Financial stability

What is the company’s debt-⁠to-⁠assets ratio? It’s clear that the lower a company’s debt-⁠to-⁠assets ratio, the easier it is for it to weather temporary difficulties without letting them become permanent.

Our channel for investors

If you resonate with the approach to company analysis that we use, you’re in the right channel. We run this channel for investors who want to:

• build a long-⁠term portfolio
• understand what they’re buying
• avoid noisy trading and random ideas

Our website: https://avistocks.com/