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Our investment criteria

Every stock idea we propose must meet our internal investment criteria — a disciplined framework built around real profits, fair valuations, and protecting against downside risk.

Core investing philosophy
  • Fundamental analysis to determine reasonable value
  • Agnostic to company size and sector
  • Avoid macro commentary and media noise
  • Reduce downside risk first
Six criteria every idea must pass
01
Proven track record of real profits
We don't just look at earnings per share — real profits are verified through cash flow. At least 5 years of profits are required, whether listed or unlisted.
5+ years of earnings history
  • Operating cash flows routinely exceed earnings
  • FCF yield at least in line with earnings yield or higher
  • FCF not diminished by high ongoing capex or lease liabilities
02
Acceptable level of profitability
We require a return on capital that adequately compensates for risk relative to the prevailing risk-free rate — currently cash/bond rates around 5%.
Return on capital ≥ 8%
This threshold may vary with prevailing cash/bond interest rates.
03
Earnings not in long-term decline
Companies in structural decline risk becoming value traps — appearing cheap while fundamentals continue to deteriorate. We require earnings to be stable or growing.
No sustained downtrend in earnings
04
Consistent dividend payments
A track record of dividends aligned with profitability signals financial discipline. For ASX-listed companies, franked dividends offer a tax-efficient return to shareholders.
Consistent dividend track record
  • Dividends reinvested to compound returns
  • Dividends provide a margin of safety against losses
05
Manageable debt
Excess leverage amplifies downside risk. We verify the company can comfortably service its debt from operating earnings, and prefer debt-free or low-debt businesses.
Interest coverage (EBIT / interest) > 3×
  • Calculated from the income statement
  • Preference for debt-free or low-debt companies
06
Reasonable valuation
We use EV/EBIT as our screening metric (EV = market cap – cash + debt). We do not buy above 20× EV/EBIT regardless of growth — to limit the potential for capital loss.
EV/EBIT ≤ 20× hard ceiling
Stable / low growth< 10×
Moderate growth (5–10% p.a.)< 15×
Strong growth (10%+ p.a.)< 20×
A note on forecasting: While past performance is not indicative of future performance, we do not attempt to predict future earnings beyond what the company itself discloses to the market. Our criteria are deliberately backward-looking and evidence-based — we let the track record speak for itself.