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How To Pick Stocks Using Return On Equity

http://www.investorsfriend.com/return_on_equity1.htm

Those stocks that i found and has high ROE stocks are usually asset light type of business and hence traded in high multiples of P/B.

In mathematical sense, low PE low P/B stocks should provide higher returns.

However, from what i noticed, it is most often that those Low PE, Low P/B stocks does not perform better than those High PB / high ROE type of stocks.

I am not sure if there is low PE, low P/B yet high growth rate type of business around.

Asset Light Businesses?
Investopedia explains 'Asset-Light Debt'
A company may use this strategy by creating a a holding company. The company would then use the holding company to issue debt and pay off the debt through dividends from the original company.

So the mother company has very little debt, therefore high "ROE"
Many extinct fraudulent companies of USA, had made use of this "trick" to cook their books. So be careful of companies that has one too many holding companies.

IMO, when one use ROE as a KPI to pick stock, one shall also need to read with debt ratio.

High ROE with high debt ratio means that the company is using too high leverage. It may not able to withstand stormy economy.

High ROE with low debt ratio is thus prefers.

I think Citiraya also used to be around 25% ROE:

http://globaldocuments.morningstar.com/d...c/original

So was ACCS (>30%):

http://www1.lts.com.sg/research%20report...e00164ef0/$FILE/dailyex.pdf

There is some risk in high ROE companies....

Picking stocks using ROE?

If you ask me, I think picking stocks based on *** increasing dividends ***over a period of a decade time frame is a safer bet.

Why?

There is NO SINGLE FACTOR in whole host of parameters eg PE, PB, FCF, EBIT, yield and the list goes on.... that is able to defeat the paying out of cold hard cash into the shareholders' pocket.

I only believe in money I see. The rest may well be colourful accounting etc.

Money paid is real. It could only mean the company is making money and nothing else.

Increasing cash could only mean the company is growing. Otherwise how to pay more and more?

Ha! Ha!
For dividend payment and showing a lot of current assets, company can fake also. But not for long. Maybe one to three years. Therefore companies with pedigree history just like animals, are safer in a way. Though these companies may not make you very rich fast enough. Try penny stocks then.

That's why. Increasing dividends paid out over a span of a decade is the single most important reliable factor I consider.
I cannot think of a company which can fake a/c or do hanky a panty business and yet still able to pay ascending dividends.
I beg to differ when pple say these companies cannot make u rich. Of course timing is impt.
When entered at a decent price, and using compounding principles, immense wealth can be created.
But I do agree, most pple dun think so long term.
When I speak to pple about this, their eyes roll somewhere else.
It is indeed boring and not a welcome technique. But it's quite a sure way of becoming very wealthy over time.

(12-06-2013, 11:14 PM)paullow Wrote: [ -> ]That's why. Increasing dividends paid out over a span of a decade is the single most important reliable factor I consider.
I cannot think of a company which can fake a/c or do hanky a panty business and yet still able to pay ascending dividends.
I beg to differ when pple say these companies cannot make u rich. Of course timing is impt.
When entered at a decent price, and using compounding principles, immense wealth can be created.
But I do agree, most pple dun think so long term.
When I speak to pple about this, their eyes roll somewhere else.
It is indeed boring and not a welcome technique. But it's quite a sure way of becoming very wealthy over time.

How many years? Can wait or not? 1st of all can survive or not? How many Choon Chiew?

Ok. Agreed. Age of investor also v impt since we talking abt half to a dozen years.
That's where tons of research comes in. Nothing is guaranteed of coz.