First, he took a long term look at both companies to see how they had treated their share holders. MO showed regular growth over a long period where IBM appeared to be stagnant. A screen that Buffet style analysts use is for a $1 increase in market value for each $1 increase in Retained Earnings. And there should be a consistent increase in share value.
Second, he looked at management. Bob noted several instances where IBM management appeared to be looking out for their own interests instead of for shareholder interest.
Third, Bob looked at alternative investments. He looked at a low risk investment (a bank CD) and wanted his riskier investment in the stock market to increase in value more than the available CD return. Otherwise, why expose yourself to the risk.
Fourth, Bob looked at MO growth versus its Price Earnings (PE) multiple (the share price divided by the Earnings Per Share). This is sometimes called the PEG ratio. You generally want a company where the Price Earnings Growth is higher than its PE multiple.
Fifth, Bob looked at the dividend and the dividend growth rate. A stock that pays a dividend can return a significant portion of its overall return in that form. A dividend also reduces stock volatility.
Sixth, Bob pre-determined entry and exit points by studying charts of the stock and reading analysis to see over time what is considered cheap and what is considered expensive for the stock.
Thank you Bob for your most enlightening comment!
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