Take your lead from the world's great stock pickers

THERE'S no mystery to what makes a great stock picker. Great ones review hundreds or thousands of companies looking for clues to the right mix.

Warran Buffet
HE FAVOURS concentrated positions in companies he has carefully researched, and he sometimes holds stocks for decades.
-> Look for a long history of positive operating profits: five years or longer.
-> Be sure the company's resources are generating ample profits. Rather than focusing purely on earnings and earnings growth, look for high returns on equity: at least 15 per cent.
-> Look for shares that are cheap relative to real cash earnings. You can do this by looking for low price to free cash flows.
-> Be sure the company is creating profits for shareholders in the form of higher stock prices. Look for share price growth that has exceeded retained earnings growth over the past few years.

Peter Lynch
HE DIVIDES companies into six categories, such as stalwarts, turnarounds and fast growers, and gives different promising signs to look for in each. Small, fast-growing companies are among his favourites, so let's focus on those.
-> Look for earnings growth that's fast but not too fast. Growth rates that are too high might not be sustainable for long. Favour companies that are growing earnings at between 20 per cent and 50 per cent a year.
-> Look for relatively undiscovered companies. You can do this by searching for low levels of institutional ownership, which show that investment funds and the like haven't yet caught on to the stock. You can also look for stocks that are covered by no more than a few Wall Street analysts.
-> Look for insider buying.
-> Look for manageable debt levels. Watch for debt to capital ratios that are below industry averages.

Excerpted from Jack Hough's Your Next Great Stock, published by John Wiley & Sons, Inc.