As an investor, it is hard not to like Jim Cramer and if you read his books you will gain plenty of ideas on not losing money and more importantly making money. He wrote a book called Get Rich Carefully published by Penguin Books, New York, 2013. One of the wonderful things Mr. Cramer does is tries to ensure you do your homework before investing. You have money and what to invest in – if you are not sure try a low fee S&P 500 Index which is the bench mark all the money managers are trying to beat and if they do not you have done better. If you want to invest in individual stocks, then you will need to do your homework.

You done the macro level and decided to pick a sector or two to invest in, what do you do?

You ask more questions and Mr. Cramer has 10 tests of high grade stocks:

First Test – is there potential for multiyear growth that we can put a value on? A clear growth path that provides long-term visibility with multiple revenue streams?

Wall Street loves growth, does the company you are looking at – know how to get it? What trends support it?

Second Test – Is the total addressable market big enough for the companies to sustain their growth?

Third Test – Does the company have the ability to stay competitive?

Fourth Test – Is there a possibility for the company to return the capital over time, through either dividends or well-timed buybacks?  Or does the company have such a well-defined growth path that it can just continue to pile the money into the business to get consistent growth?

Fifth Test – Can the company expand internationally?

Sixth Test – Can the balance sheet support strong growth?

Seventh Test – Is the stock expensive on the out years?

Eighth Test – Does the company have the right management?

Ninth Test – Does the company need macro growth to meet the numbers?

Tenth Test – Can the company maintain or grow its margins?

Linking to dividend paying stocks, when the growth stock is also a dividend payer that is a bonus. One of the reasons why you want to start with dividend paying stocks is to get the discipline to eliminate the ones who do not pay a dividend. There are much more of them than dividend payers. The idea behind doing your homework is to narrow the list of companies for you.

There are more questions than answers, till the next time – to raising questions