When looking for "best stocks", I start by looking through the rear view mirror.

I imagine if I started a really great business 10 years ago, what would it look like today:

  • the business would have been making money hand over fist - generating a lot of free cash flow much of which now sitting in the bank
  • because the business has been generating so much cash - it has little or no need to borrow money. Worse case, if it has debt - the business could comfortably pay the debt off out of free cash flow into 3 to 5 years
  • the business is battle tested - it has gone to battle with fierce rivals and won. Its defenses (competitive advantages, moat, etc) have withstood challenges from seemingly strong competitors who in the end were not able to match or circumvent its competitive advantage
  • the business  grew consistently, but quickly. From a young sapling into a strong oak. The business did not perish during droughts, rather it found ways to continue to flourish
  • The business made a lot of profit for every dollar we invested in the business - so we just kept reinvesting
  • Those reinvestments were not just profitable, but they strengthened our competitive advantages. So the business became more and more a fortress impenetrable by competitors
  • Yes I said "competitive advantages" with an "s", plural, multiple competitive advantages so if a competitor could match one it could not match the others.
  • Over the past 10 years, the business has built a great team dedicated to the success of the business. Protecting its sources of competitive advantage, but aggressive enough to conquer the market as new opportunities arise. If one team member is run over by a bus, the company culture and institutional knowledge is enough to bridge the gap. A team so great nobody wants to leave and others are desperate to be part of.
  • The market for the products/services provided by the business is so large, we can easily see a bright future ahead. At least another 10 years as good as the last with strong growth and lots of profits.

So now you know what you are looking for in your search for "Best Stocks". These are the characteristics of a great business. So when you think you have found one, come back and read this list and see how it stacks up. Is it truly a "Best Stock". If so, add it to you list of Best Stocks.

Now comes the hardest part. Be patient. Wait till the pendulum swings in your favor and you can buy the best stock at the best (or at least much better than average) price.