Stock Selection Criteria - by Mr. Chen Yi

Stumbled across the personal website of Mr. Chen Yi who claims an annual IRR of 34% for his 10 years of investment experience in the stock market. On his website, he listed his 10 criteria for stock-picking.

I shall modify a little and use the list as a guide for my future stock investment.

How to identify a good stock
Track record of profitability:
1. The company does not incur loss in in the last 5 years
2. Net profit should be growing for the last 3 years
Financial health
3. Current liabilities <= current asset
4. Shareholders' fund >=0.5 * total liabilities
5. Total liabilities <=5 * cash balances
Growth prospects
6. Based on what the company is doing, earning is expected to grow over the next few years
7. Annual investment return should be 25% or higher
Annual investment return = E/P + expected annual earning growth rate
Valuation
8. Forward P/E<=10
9. Stock price <=3 * NTA per share
10. Dividend yield >= 4%
Management
11. Good management