Want to Back a Winner? Vet your Stocks.

This MarketBase+ team member was interested to see that the clever people over at the Australian Financial Review have just dropped an article about some of the key characteristics of stocks that, as they write it, comprise “the stock market’s last free lunch.”

Brace yourself and hold on tight, this one’s going to blow you away: they reckon you should… just buy quality companies.

No, really.

If you read this and thought (like this blogger initially did!), it must be a slow news day at the finreview, you might be missing the point a little. The surprise here isn’t that quality stocks are reliable and perform consistently. Rather, it’s that the market forces at work don’t drive the price of such stocks up as high as you might expect to match their value.

The theory behind this phenomenon seems to revolve around a disproportionate emphasis on short-term high-reward strategies among buyers.

But if you’re less interested in the theory, and more interested in how you can take advantage of the phenomenon, then you’ll want to know these two things:

1. The key characteristics that make a company “quality” in this sense are “reliable earnings, high returns on equity and low levels of debt.”
2. You can find that information in about 45 seconds if you use Finvett. Try it today.