Author(s)

S.-H. Liang, S.-C. Liang, L.-C. Lien & C.-C. Liang

Abstract

Adopting the investment concepts of Rule#1 used by Phil Town and the formula for identifying and evaluating the stocks of tomorrow used by Michael Moe, this paper constructs a novel financial model of long term growing stocks for the Taiwan stock market. The investment themes are derived from the intersection of the emerging industry, megatrends, and hot areas for future growth. Then, the candidates of good companies are selected by using the three circle method. To evaluate the candidature of excellent companies, this paper uses both Town’s four Ms method (Meaning, Moat, Management, and Margin of safety) and the Big Five number (Return on Invest Capital (ROIC), Sale growth rate, Earning per share (EPS) growth rate, Equity or Book Value per share (BVPS) growth rate, and Free Cash Flow (FCF) growth rate) and Moe’s four Ps (People, Product, Potential, and Predictability). Also, the EPS growth rate is used to rank the companies. Furthermore, this paper finds the sticker price by estimating the future earnings growth and price/earnings ratio, checks the sticker price by the discounted cash flow method, the Price Earning to Growth Ratio (P/E/G) method and the Price to Sales Ratio (P/S) method, and then calculates the price of the Margin of Safety (MOS). Finally, the Taiwan long-term stock investment is studied by using this simple and step-by-step financial model. This paper aims to present a useful model that individual investors can apply easily. Keywords: financial model, long term, growing stocks, Taiwan, 4Ms, 4Ps.

Keywords

financial model, long term, growing stocks, Taiwan, 4Ms, 4Ps.