Flip Flop Finance

Barefoot,

I keep seeing proof of financial advisors contradicting themselves. Another example of this was in last weekend’s newspaper, where one broker had a ‘BUY’ on Cochlear and another had a ‘SELL’ on Cochlear! For us amateur punters who run a (successful) SMSF (aided by your weekly words of wisdom), how are we supposed to choose shares for an SMSF?

Barry

Hi Barry,

You’ve nailed the paradox of the stock market: on each side of every trade there is someone with an opposing view.

As for choosing shares, I have three things I look for. First and foremost, I only invest in businesses that make money. Sounds obvious, but of the 2,200 (or so) businesses listed on the ASX, fewer than 10 percent of them consistently make profits money over a five-year period. That narrows down the pack. From there, I look for companies that have low debt and a high return on shareholder equity. Finally, they have to have a ‘margin of safety’ -- in other words they need to be going cheap at the moment.

Scott