What is the criteria to select Stocks for Long Term Wealth Creation Portfolio
Long Term = 10 -12 Years from Today.
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Before that you need to ask yourself - how long is your long term.
As short as possible.
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Long Term I mean by 10-12 years.
By Long term I mean by 10 -12 years
Think of companies as brands. What is a particular brand known for?
Tip: Don’t think of product features, think of characteristics.
How scale-able is the business? Is the market crowded?
What do unit economics look like? How are they vulnerable wrt inflation, disruption, change in regulations, etc in their segment?
Also what do you observe in terms of trends in the company’s customers?
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Continuous revenue growth > 10% with ROCE > 15% YOY for last 10 years, then safely you can expect at least 20 to 25 percent return over a 10 years period regardless of the purchase price.
Company growth is more important. This can be analysed by checking its products, future prospects or its unique characteristics (if any).
After finding the growth company -
- Check Sales/Revenue growth. It should be consistent/increasing.
- Average RoE and RoCE of minimum 3/5 years should be more than 18% (or increasing)
- Debt to Equity should be less than 1 (except Banks and NBFCs)
- No or less Pledged shares (< 10/15)
- Consistent Cash Flows for min 3/5 years.
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Since you seek not scrip names but a general direction on setting up a thought process to select long term opportunities a good place to start could be here. It may help you figure out how to tap ideas and stories by making them actionable in form of real stock selection. Cheers.