Traph has generously answered these important questions on researching companies.Traph is a professional trader who also contributes to Topstocks.He also has his own website which I recommend that you visit.:-

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Now to the questions and answers.

Firstly I commend you on the questions, very valid and to the point. I have copied the questions below as I answer and expand on them individually, I feel your line of questioning is extremely valuable to newbies willing to take a closer look at how and why a research should be executed.

Your questions are in highlighted bold character

Out of interest, do you look for soon-to-be producers, well established companies, or small companies of a few cents that may have a lot of potential in future years? Or do you like to have a mix of all of these?

Well established companies have already gone through the initial stages of development and the hard work associated with it. So fundamentally my search reflects soon to be producers.

The value when investing is important, and if you look at a recent example, I’ll take CVN for example moving from 5 odd cents to 80 odd cents in a matter of less than 1 year. This is a return of 1600%!!! not bad for an investment in research I do prefer to concentrate on a specific outlook/outcome rather than mix, and if you research a specific criteria and say choose 5 different companies it is most likely you may again strike 1600% in one of them at least if the research was confidently performed.

What would you say is your key criteria when researching stocks? Do you have any criteria you use to cross off a stock right away?

The key element I choose and concentrate on is Historical management achievements and dilution with consequences in the results after such dilution occurs. It is important to combine results of dilution with the performance pre/post. Many companies will dilute shares on promise and never deliver; these in my books are crossed off instantly!

Do you sometimes have a “feeling” about certain ceo’s doing very well into the future, or is an investment made purely on clinical fundamental analysis?

I don’t believe feeling is the proper tool to use (if you can call it a tool as such). By referring to feeling for a stock you are insinuating a love for the company and there is no such thing when money is involved! Fundamentals are based on clinical events and outcomes thereof and should always be the basis of any investment strategy.

I am not saying we always get it right, but you are very likely to get it more right than wrong when you use fundamentals incorporating charting the history of events of a certain company.

Do you weight the capital spent on probability of success or do you weight evenly across a broad selection of stocks?

Each company will have a certain outlay capacity. Not all companies can outlay cash to develop prospects and be successful. Some companies are cash rich yet may not develop any prospects in the time constraint and find themselves in a pickle when cash runs out and they run out of time.

Others will outlay the cash on underdeveloped prospects while good prospects lay untouched. This refers to how good the management is and what their neighbours are doing! If they can not see a good prospect being say drilled for oil next door and leave their own tenement untouched then management should be questioned as to why PELxx1 strikes 10 million barrels of oil and next door PELxx2 is still growing grass???? Management has a lot to answer for in these situations.

The spending of capital as in any business should be directed correctly. Keeping money in the bank which is earning minute amounts of interest in order to show a good balance sheet is a deterrent for me and a detriment to the company and its share holders. Cash should always be used to generate more cash hence allowing the wheels of business and cash generation fluid.

Do you like to specialise in certain sectors with your selections, or do you like to mix things up to keep things balanced?

The market moves and waves of flavours! One day tech, the next Uranium, another is Iron Ore and so on. I tend to move with the wave and not sit idle on anticipation of outcomes.

I feel to succeed one must go with the flow the market heads into as sitting on some unknown company for 10 years to evaluate itself and its products is unlike finding a company that is in the current market flow and achieving results, hence you would be able to snowball the profits into the next cycle of waves and events as things progress.


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