Top 3 Questions To Ask About Every Stock: Are they Ready, Willing, and Able?

Too many people focus on stock screeners and bizarre formulas to tell them what stocks to invest in. That’s not how Peter Lynch does it. That’s not how Warren Buffet does it. That’s not the Common Sense way to invest. You have to keep it simple, invest in what you know, invest in well run businesses.

Here at The Common Sense Investor, we’ve come up with a quick little method to evaluate a new stock, you just have to ask yourself: “Are they Ready, Willing, and Able?”

1. Ready: Does this company have room to grow?

Is this company ready? Ready as in, poised, prepared for future growth. Ready to get big; ready to grow.
A company can only get so large. Bank of America (BAC) is the second largest company in the United States, it’s a very good company, they’re willing and able, but the potential for growth just isn’t there. Invest in companies that are ready to grow, companies that are small enough to have many years of strong growth ahead of them.

2. Willing: Is this company making it’s customers happy?

Willing as in, they want to succeed. They want to make money, and so they want to make their customers happy.
A recent study showed that you can beat the S&P 500 by investing in companies with high and increasing consumer satisfaction.
Companies make money from their customers, that’s the only way. It may sound obvious, but far too many investors complicate matters and overlook the little things, like customer satisfaction. If a company’s customers are happy, they’ll buy more, they’ll come back, they’ll talk to others about the product and get others to use it. This translates into long term cash flow and equity which leads to increased company value and growth.

3. Able: Are the economics of the company there?

Able as in, is it possible? Can this company realistically make money? Some companies do an excellent job pleasing their customers and are small enough to see plenty of future growth — but the fundamental economics just aren’t good enough. Look at JetBlue (JBLU). Airlines are a very difficult industry to make money in. They have number 1 & 2 down… they’re small and ready for growth, and they’re consistently rated highly in customer satisfaction, but they’re just not in a good enough economic spot to be appealing to an investor; it’s just too risky. The company has to be able to make a profit.

That’s it, 3 very simple questions you need to consider when evaluating a stock. Do your homework and answer each one honestly and you’ll consistently beat the market. It’s just Common Sense.