What is the perfect stock?

I was reading through some random financial blogs and I ran across a particular blog that posed the question “Is [insert stock name here] the perfect stock to invest in?”

It actually made me sit up a little straighter in my chair because it’s something that I don’t normally even think about. The perfect stock?

What is this I don’t even…

Philosophically I fall under the camp that believes that there is no such thing in this world as perfection. Therefore, achieving perfection is also impossible. Stock trade is also filled with issues of Psychology, which naturally adds a level of unpredictability that even further prevents perfection.

For a few minutes, though, I will stray from my philosophical beliefs and consider what would be the perfect stock, if such a stock existed.

Here is what I think some of the characteristics a stock would need to have to be considered perfect:

  • Growth – a company would need to have had consistent growth in the past and would need consistent, perfectly predictable, and unlimited growth in the future. This company would also basically have no competition in their respective industry/area – a monopoly.
  • No Debt – not only would this company having amazing growth, they would have zero debt as well.
  • No Risk – how could a stock be perfect with any risk attacked?
  • Vastly Superior Financial Numbers – that company would have to sell a high profit margin product or service that nearly everyone needs -such as air. Most people need air, right? (I can’t think of a few that would be better off without air) I think something like this was in the movie Total Recall.

I think we can all get the picture now. There is no way short of enslaving the human race or doing something that is pretty much illegal that we would get even close to a perfect stock.

Of course I could just be taking this a little too far. They probably don’t mean a “perfect” stock, but a really good stock. Then again, why don’t they just say it’s really good instead of perfect? We all know why, it just doesn’t sound as sexy…

 

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Comments
2 Responses to “What is the perfect stock?”
  1. SmallIvy says:

    Actually what you are describing is not the perfect stock because you would make no money on it. I agree that no debt is great and use this when looking for stocks (it shows that they can manage their cash flow). I also look for growth because a stock only appreciates over long periods of time if the value fo the company is growing.

    If the stock had perfectly predictable earnings, however, and there were no risk, tehe return would be no better than that of a savigns account. I believe these are currently paying about 0.05% while inflation is at least 5%. The reason one can more than a savings account return on stocks is because the future earnings and dividends are not a certainty. This means that the current prices are low enough that if it does meet earnings, the reward will be substantial enough to justify the risk taken.

    • Gian Sorreta says:

      Thanks for the good points!

      I was trying to go the route that the “perfect” stock cannot really exist, or that the situation to create one would be ridiculous. Some of these “investing” blogs and articles can get incredibly obnoxious with the way they try to sell something to their readers. (I like your blog much better!)

      I’m glad that you were also able to point out that having no risk and perfect predictability would not bring any substantial returns.

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