Two Paths to Investment Success

I've developed two distinct investment strategies because I recognize that not all investors have the same goals or risk tolerance. Some of you might be looking for explosive growth potential, while others prefer a more stable approach. That's why I created:

1. High Growth Gems: For investors seeking companies with high growth potential

2. Steady Growth: For investors preferring established companies with consistent performance

High Growth Gems: Finding Tomorrow's Winners

When I look for High Growth Gems, I'm searching for companies that are expanding rapidly and have the potential to become tomorrow's market leaders. These companies typically:

• Show exceptional revenue growth

• Have higher market valuations (reflected in their PE ratios)

• Generate strong and growing cash flows

• Maintain healthy balance sheets despite their aggressive growth

This strategy is ideal for investors who:

• Have a longer investment horizon

• Can tolerate more volatility

• Are comfortable with paying a premium for growth potential

Steady Growth: Reliable Performers

With the Steady Growth strategy, I focus on established companies that have proven business models and consistent performance. These companies typically:

• Trade at more reasonable valuations

• Generate reliable cash flows

• Have manageable debt levels

• Show consistent but moderate growth

This strategy suits investors who:

• Prefer stability over excitement

• Want predictable returns

• Are looking for companies they can hold for the long term

My Valuation Methodology: Finding the Right Price

Once I've identified companies that meet my strategy criteria, the next crucial step is determining whether they're priced attractively. I use a discounted valuation approach that considers multiple perspectives:

1. Discounted Free Cash Flow (Long-term Value)

This method focuses on what I believe truly matters in the long run – a company's ability to generate cash. I look at the company's free cash flow and project it into the future, then discount it back to today's value. This tells me what the company is worth based on its fundamental ability to create value.

2. Discounted EPS (Short-term Market Sentiment)

This approach captures how the market is currently viewing the company. By looking at Discounted EPS, I can understand the short-term price trends and market enthusiasm. This helps me gauge whether the market is too optimistic or pessimistic about a stock.

3. Discount Blended (Balanced Perspective)

This is my preferred method because it combines both long-term value and short-term sentiment. By blending the free cash flow and EPS approaches, I get a more balanced view of the company's true worth. It's like getting both the bird's eye view and the ground-level perspective at the same time.

Buy, Fair, or Sell? Making the Decision

Based on my valuation methodology, I classify each stock into three categories, which are labeled in the Discount Blended column:

• Good Buy: The stock is trading at a significant discount to its intrinsic value

• Fair: The stock is reasonably priced

• Bad Buy: The stock is overvalued and should be avoided or sold

The thresholds for these classifications differ between strategies. High Growth Gems require larger discounts to be considered good buys because they inherently carry more risk. Steady Growth stocks, being more stable, can be attractive at smaller discounts.

Key Principles to Remember

As you begin your investment journey, keep these principles in mind:

1. One Size Doesn't Fit All: Choose the strategy that aligns with your risk tolerance and investment goals.

2. Valuation Matters: Even the best company can be a bad investment if you pay too much for it.

3. Multiple Perspectives: Looking at both long-term fundamentals and short-term market sentiment gives you a more complete picture.

4. Patience Pays: Whether you choose High Growth Gems or Steady Growth, successful investing requires patience and discipline.

5. Risk and Reward: Higher potential returns (High Growth Gems) come with higher risk, while lower risk (Steady Growth) typically means more modest returns.

Investing is a marathon, not a sprint. By understanding these strategies and applying them consistently, you're well on your way to building long-term wealth.

Happy investing!

Victor H. Investing

Victor H Investing

I share my journey as an active individual investor, providing reviews of various investment ideas. My approach involves using a value model built from the financial statements of each investment to assess potential opportunities.