How to Pick Quality Shares: A three-step process for selecting profitable stocks by Phil Oakley
Reviewed by Richard Penny
Phil Oakley marks his debut publishing career with an enjoyable read.
In a brave move that sees him tackle the complex subject of accounting as part of a three-stage process to investing, he succeeds in engaging with the reader for the duration of his work. In what is a relatively light style – about 200 pages – the book comes across as well written and provides important context for those looking to improve their working knowledge of investing.
It is apparent early on that the author has a broad range of investment experience, matched with a keen interest in writing. The evident crisp style and direct approach provides a timeless reminder of the criteria for investing in profitable companies.
His fundamental analysis provides a good basic level of understanding, as Mr Oakley looks to bridge the gap between investment anecdotes and methodology. Having walked the fine line of technicality, the content strikes a balance between building the knowledge and skills required in the investment industry, without overwhelming the reader with unnecessary jargon and statistical analysis.
The content successfully manages to move seamlessly between the three stages, beginning with the focus on the importance of growth and high returns on capital, before moving to highlight the potential warnings signs to be mindful of when analysing income statements. He finishes by summarising the various different valuation methods at an analyst's disposal, as well as providing a look at alternative earnings measures, such as free cash flow.
The author provides a useful framework and context that should resonate with UK investors. Mindful of the reader base, he looks to add value by referencing UK companies as part of his observations.
Full of practical ideas, Mr Oakley’s work provides a sound explanation of an investment process that pivots between value and growth. Whether you are an early stage professional or a private investor, the content makes for an interesting read. Overall, his work provides a sensible approach to evaluating shares, carefully highlighting the pitfalls that await any potential investor.
I found this to be highly complementary to Pat Dorsey’s Little Book That Builds Wealth, which provides insight into the importance of economic moats.
In the appendix, Mr Oakley also pays tribute to the investment work of Joel Greenblatt, who built his career on buying good companies at a cheap price – another author that has a place on my book shelf. Both are ideal for those new to the topic or those looking to develop their knowledge.
Published by Harriman House
Richard Penny is manager of L&G UK Special Situations trust and L&G UK Alpha trust