Tip 7 The 4Ms and how to use them

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 look at the business, the competition, and the leadership. The 4Ms of investing were coined by Warren Buffett and further employed by numerous other top investors, including my mentor, Phil Town.

The 4Ms of Investing = MOS, Meaning, Moat, and Management

Here is a breakdown of the 4M scores:

  • 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? Are those revenue streams scalable? Scaleable means a business can increase revenue faster than it can increase liabilities such as employee payroll and raw materials. 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 over 16 years of experience in software engineering. 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 and has low competition is typically a wise investment. In other words, it has a wide moat.

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 leader 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 4 M’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 of 80 or higher.
  • Growth Stock: Growth stocks are Watch or Overpriced stocks with a 4M score of 80 or higher.
  • 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.
  • Speculative Stock: Speculative stocks are Overpriced stocks and have a 4M score of 59 or lower.

Note: This is not financial advice. Make sure you buy and sell stocks that align with your own personal investment goals.