An On Sale stock is a potential Buy.
An Overpriced stock is a potential Sell.
The question is, what determines when you actually BUY or SELL?
The answer is the 4M Confidence Booster.
When you click on a stock within Tykr, you can find the 4M Confidence Booster.
As an investor, you need to look past the numbers and also look at the business, other businesses in the same sector and industry, and the track record of the CEO. The 4Ms of investing were inspired by Warren Buffett and the name “4M” was coined by Phil Town.
The 4Ms of Investing = MOS, Meaning, Moat, and Management
Here is a breakdown of the 4M scores in Tykr:
- Score between 80 and 100: Yay! You should have high confidence buying this stock. It passes all 4M!
- Score between 60 – 79: Alert! There may be better stocks in the market. Only buy this stock if you truly believe the company will improve!
- Score of 59 or lower: Warning! There are better stocks in the market. Due to the low score, you should consider looking at other stocks.
1) MOS (Margin of Safety)
The MOS is the math part of investing. This includes the Tykr Summary, Score, and MOS. Try to look for those stocks that are On Sale with a high Score and high MOS.
Now move on to the Meaning…
2) Meaning
Does the business have multiple streams of revenue? How scalable are those revenue streams? Scalable means a business can increase revenue faster than it can increase liabilities such as employee payroll. It’s also important that you understand the business, industry, and sector. Warren Buffett has stated that an investor should never invest in a business they don’t understand. In my case, I would say I’m very knowledgeable about tech stocks, having about 20 years of experience in tech. On the other hand, I know very little about pharmaceutical stocks. In this case, I avoid pharmaceuticals. As you can see, I only invest in businesses I know.
Now move on to the Moat…
3) Moat
Is the business easy or hard to duplicate? Does this business have a lot of cash on hand? Does this business have a strong brand moat? (Coke, Visa, and Apple are strong brands). A business that is hard to duplicate is typically a wise investment. In other words, it has a wide moat. Keep in mind, Tykr looks at other businesses in the same Sector and industry. Some of these businesses may be competitors and some may not but that is okay. The 4M Confidence Booster is taking a snapshot against a few other Mid Cap, Large Cap, and Mega Cap stocks in the stock market. We simply want to use the 4M Confidence Booster to see how a business stacks up against a few other potentially strong stocks.
Now move on to the Management…
4) Management
The management requires you to be a good judge of character. If you are someone with high integrity and character, you can usually see through the BS pretty quickly and understand someone’s true intentions. Some key identifiers to pay attention to… Does the CEO take the blame for mistakes, or do they point fingers? Does the CEO cause drama on social media, or do they remain relatively quiet? Does the CEO make wise decisions or poor decisions? A good CEO owns their mistakes, has high integrity, and makes great decisions for their customers and shareholders (you and I). An investor should invest in businesses that are run by great leaders.
Here is how you apply the 4M’s to determine the difference between a value stock, growth stock, dividend stock, or speculative stock.
- Value Stock: Value stocks are Tykr’s specialty! Value stocks are On Sale stocks with a 4M score close to 80 or higher.
- Growth Stock: Growth stocks are Watch or Overpriced stocks with a 4M score close to 80 or higher.
- Speculative Stock: Speculative stocks are Overpriced stocks with a 4M score of 59 or lower.
- Dividend Stock: Dividend stocks are On Sale and Watch stocks that pay a Dividend. A Dividend stock can also be a Value stock or Growth stock. However, a Dividend stock will rarely be a Speculative stock.
Note: This is not financial advice. Make sure you buy and sell stocks that align with your own personal investment goals.