What to look for in a potential investment?

I'm often asked what to look for in an investment. My standard reply is:

1. Great Company

2. Fair Price
What qualifies as a Great Company?

+ It generates high returns on capital

+ Regularly Increase in earnings (or operating cash flow)

+ Growing dividends (if you want a dividend growth strategy)

+ Compound intrinsic value (a growing book value is a good proxy)

 

Btw, that sequence is important, and actually logical. And it all starts with a high ROIC. Meaning, the capital allocation skills of the management are important.