Pick big established blue chips
They have lower growth, but are unlikely to go out of business
Pick companies that you know and use (Ie buy the bank you use, buy telco you use etc)
You are a customer for a reason so they must be pretty good
You vote for companies with your money
Would you want to support cigarette companies (they are highly profitable), fast food, fossil fuels or jails
ESG (Environment, Social and Governance) are a type of company with socially conscious standards
Only pick companies in the three circles of competence
Where you make money
Where you spend money
What you are interested in/hobbies (buffett said this)
Buy wonderful companies at attractive prices
Rank companies based on 4Ms: Meaning, moat, management, margin of safety
Meaning (answer these questions for tesla)
what is the story of the company?
what is its mission?
how does it fit in your 3 circles?
how does it fit in industry?
Moat
Protects company from competitors and assures long term cash flow, the stronger the moat the better
Most companies last 15 years
When picking investments, timeframe should be forever, valuation methods go with 10 years
6 types(the more a company has the better)
Brand (coke brand soda, kleenex)
Switching (apple/microsoft ecosystem)
Low cost (walmart/Costco)
Secrets-(Intangibles/patents—drug company)
Network effect (amazon 3rd party resellers/mastercard credit card machines/facebook)
Toll bridge (railway, pipeline)
There are two ways that a moat is often attacked
Copy the product and do it better (make it cheaper or better quality)
Eliminate the need for the product(computers eliminate the need for typewriters)
Only buy companies that will be around in 10 years
Big 4 numbers tell you about moat
Net Income
aka net profit or net earnings
Found on the income statement
Gives profits after all costs have been deducted
Book Value + dividends
Aka Equity + dividends
Equity is found on balance sheet
Dividends are found on Cash flow statement
This sum gives the value of the business is it closed down and all the assets were sold (before dividends were distributed)
Sales
Found on the income statement
Amount earned from selling(revenue)
Operating Cash
Found on the Cash flow statement
Represents the actual cash received from business operations
Each of the Big Four numbers should grow by 10% each year
You don’t need this amount every year, but you just want some sort of consistent time-average growth
You need to compile the big four and come up with a growth rate that represents all of them (this is not an average). The author calls this the windage rate.
You find the companies financial information through the 10-K form
Management
the board of directors have fiduciary duty to stockholders (responsibility to make money for shareholders with a balance of risk and reward)
the board selects executive officers (CEO, CFO, COO) on your behalf
make sure they are good honest people
they should have inside ownership
owner led is usually best (jeff bezos, steve jobs, bill gates etc)
they shouldn’t have golden parachutes etc
Numbers to evaluate are ROE, ROIC and debt
ROE=Net income/Equity
Net income is found on the income statement
Equity is found on the balance sheet
ROE tells you the return the company is getting on shareholder investment.
Should be 10% or better
ROIC=Net Income/(Equity+Debt)
Tells you the same thing as ROE, but includes debt
Should be 10% or better
Debt 
is preferably zero (in this case ROE and ROIC would be the same)
If there is a large debt the management can claim bankruptcy and dump the shareholders to acquire greater shares of the company.
Debt can be used to manipulate the financials
Should be 3 years or less
Margin of safety
take the price you calculate for the fair value of the stock and only buy it at 50% off
note that market value (stock price) is often affected by emotions and not the same as fair value
there are 3 ways to determine how much the stock is actually worth
you can use https://www.ruleoneinvesting.com/toolbox/
Ten cap price (based on Owner Earnings)
Payback time price (Based on Free Cash Flow)
Margin of Safety Valuation(Based on Earnings)
Ten Cap Method
Ten Cap method involves achieving a capitalization rate of 10%, that is, a 10% return on the investment each year. This 10% return is described as ‘owner earnings’, which means the return can go directly into the owner’s pocket without affecting the business.
Owner earnings are defined as “a) reported earnings plus b) depreciation, depletion, amortization, and certain other non-cash charges…less c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume”
Hopefully the owner earnings should increase over time
Warren Buffett argues that the stock market responds to people’s valuations of the stock
In this way you multiply the projected owner earnings by ten to get the predicted price of the company. 
Owner Earnings=Net income + Depreciation + Net change in accounts receivable + net change in accounts payable + income tax + maintenance capital expenditures
Company value= Owner earnings * 10
All of the above information should be found on the cash flow sheet
Limitations of ten cap are that it is rather vague in its calculation, and that it doesn’t account for growth.
Pay back time
Payback time method tells you how much the company is worth if you want to make all your money back in 8 years. It is calculated using the free cash flow, compounded by the windage for eight years.
Free cash flow = Net cash provided by operating activities + purchase of property and equipment + any other capital expenditures for maintenance and growth
The above values are found on the  cash flow sheet
Margin of safety method
The margin of safety valuation method is a simplified form of discounted cash flow analysis
The margin of safety method involves achieving a rate of return of 15% per year to make up for the risk and time of buying the stock
This method differs from the ten cap and payback time method
Now we use earnings not owner earnings or free cash flow
This is a pricing method for public companies instead of a private company (this typically doubles the price)
Has different results than the other two methods
This method uses a Minimum Acceptable Rate of Return (MARR) of 15%
Required variables are
Earnings per share (EPS) which is the total earnings divided by the number of outstanding shares is found on the income statement
Windage growth rate is determined from the Big Four Growth Numbers
Windage P/E ratio. The P/E is share price divided by EPS. Use the lowest of 
Twice the windage growth rate; or
The highest P/E in the past 10 years
MARR always 15%
The algorithm is
Determine the price of the company in ten years as how much the earnings per share grows with the windage rate.
Future 10 year EPS=EPS*(1+Windage Growth Rate)    [repeat this calculation 10 times]
Multiply the future 10 year EPS by the windage P/E to get the future 10 year share price
Future 10 year share price = Future 10 year EPS * Windage P/E
Work backwards to find the present share price with a 15% annual return
Sticker price = Future 10 year share price/(1.15)years
Divide the price from step 3 by 2 to get a margin of safety
Share price/2 = Margin of Safety buy price
You can use =FV() and =PV() in Excel to get the future and present value
FV(rate,nper,pmt,[pv],[type])
PV(rate,nper,pmt,[fv],[type])
Rate is the windage growth rate
Nper is the number of years (10years)
Pmt is not used so leave this section blank
[pv] and [fv] are the calculated EPS. These values are negative because the company is gaining money
When picking a company:
You should read all their financial statements
10K, 10Q, management discussion and analysis, company presentations, earnings calls
You should learna s muchas ouy can about the company
Develop wishlist(stock you will buy at specific price) and watchlist(stocks you might buy if the company improves)
Only buy stocks when they are below the sticker price
You should be excited by Black Swan events (shocks in stock price…corona crash) that give you a chance to buy
Your portfolio will do well if diversified
Don’t put more than 10% in a single stock/industry
Don’t buy all at once—DCA (dollar cost average)
Put a set amount of money consistently every week/month regardless of price
In TFSA do annual DCA
In fun account start DCA in recession periods
Here are the main sectors I like in the stock market
Look at them for TSX and US https://finviz.com/
Its nice to get diversification of each sector
Financials
Insurance, loan companies, banks
Banks
Big 6
TD best rn imo
RY (RBC) is biggest (another fav)
The rest are riskier and smaller (but have cheaper P/E…you get better bang for your buck)
Telecoms
Big 3
BCE (bell canada) biggest my preferred, diversified
2nd fav = telus
Rogers smaller riskier
Shaw small has seen good growth
Telecomms in Canada risky given govt direction to reduce cell phone bills and increase competition by allowing 3rd party companies to rent out access to network that the 3rd parties can resell
However they have a monopoly and deep moat
Similar to utility in modern world
Info Tech
FAANG-facebook, amazon, apple, Netflix, google
Sometimes called FAAMG
For Microsoft
In Canada you have DOCKS
Descartes
Opentext
Constellation software
Kinaxis
Shopify
High growth,but very expensive
I am fan of QQQ ETF, which can be bought in CAD as QQC.F
TEC is also good
Generally best in boom periods (but good in this recession)
Industrials
Cyclical
Rail
Very stable
Sorta cyclical 
CNR biggest
CP smaller
wide moat=no competition=too expensive to build new lines
Rail=one of cheapest transportation
Materials
Extraction of raw materials
Mining
Forestry
Chemicals
Heavily reliant on price
Not so good in recession
Except for precious metals (gold)
Consumer staples (defensive)
Costco/Walmart well liked in US
Main Canada groceries
Metro (food basics)
Smallest
Mostly quebec
Loblaws (zhers, no frills, supercenter)
biggest
Empire Co (sobeys, farm boy, frescho)
Consumer staples (food,beverage, toothpaste, soap) are low risk but also low growth
Good for recession
Consumer discretionary
Luxury items
Bad during recession
Energy
Oil in Canada=too cheap not profitable
Reliant on price of oil
Could get renewables (I have BEP.UN) but renewables are more expensive now that oil is cheap
I like transalta renewables (they own the Kingston windmills!)
Health care
Stable (JNJ, PandG)
Biotech riskier
Sort of lacking in Canada (mostly cannabis)
Utilities
Stable low growth, high dividend (income)
Water, gas, electricity companies
REITs
High dividends
REITs must payout 90% of income
They are actually distributions
Don’t get preferential tax breaks..Woops
Best to put in TFSA
Real estate investment (trust?)
Can get houses/apartments/offices/malls/Walmart property/automotive stores/ data centers…anything you can think of
I like cell towers
Sensitive to interest rate changes (low interest rates on loans are good)
Principles for a good portfolio
Buy businesses not tickers
Diversify
At least 15 stocks uncorrelated
Invest long term
Buy follow the company to make sure it is still good
Be a contrarian
Look at stocks that aren’t followed by analysts
Don’t let emotions control
Track your performance
Against SP 500 (SPY)
Difficult in Canada (TSX Sp)
Risk adjusted
Company profiles
Market cap (how much worth)
Big tech trillions (apple, google, amazon)
Number of shares
Volume
Company type (small/mid (2-10 billion)/large (10billion) cap) (value/growth)
Industry
Look at professionals analysis
Buy, sell and fair value price
Moats
Brand (coke brand soda)
Switching (apple ecosystem)
Low cost (walmart/Costco)
Intangibles(patents—drug company)
Network effect (amazon 3rd party resellers/mastercard credit card machines)
Uncertainty
Go through financial statements on questrade
Companies must publish financial reports according to GAAP principles (General accepted accounting princinples)
There are three types of statements (income, balance, cash flow)
Income statements (profit or loss statement)
How much profit does a company make in a year=revenue-expenses
How much money is earned (revenue)
How much money is spent (cost of revenue/expenses/etc)
Difference is profit (aka earnings or net income)
Balance sheets
How much is the company worth (assets and liabilities)
Asset=something of value you own (house, cash, stock, factory, inventory)
Liability=something you owe (loan, car, mortgage)
Equity=assets-liabilities=book value(whatevers left=networth)
Cash flow statements
How much cash is moving in the bank account to buy or sell stuff
10K: annual report
10Q: Quarterly report
Go through valuation ratios
P/E
P/B
EPS
Dividends
Money paid out by company
Reduce your basis (the amount of initial capital you have in stocks), this occurs when you collect capital gains that pay back your initial investment
Dividends are extra cash paid to stock holders quarterly. Dividends allow you to get your money back from your initial investment
Continuously handing out increasing dividend is supposed to demonstrate the company is successful. Companies have even borrowed money in recessions to continuously hand out dividends.
Sometimes it is not always best to give out dividends, companies like Apple take the extra profits and reinvest it. 
Buybacks involve companies buying their own shares from the market, this increases ROE, ROIC and EPS. This often has the effect of increasing share price.
However, it is important that buybacks should not happen when the stock is overvalued as it would be considered a bad investment for the company and the shareholders of the company.
Buybacks do however, not have the double taxation that is involved with dividends
When a dividend is announced
A few days before the ex-dividend date the stock price increases as more people buy the stock to get the dividend
The increase is about equal to the dividend
On the ex-dividend date the stock price tends to decrease by the amount of the dividend
This is because new investors won’t get the dividend
Some investors buy and sell a stock just around the time the dividend is issued to profit off this
Industry peers compare to get best