I am not an expert in investing. I am not a fund manager. Whatever I say doesn’t hold any weight. However, I would like to share my 2 cent thought on investing. You may not care, but I do not care whether you care.
It does not require a rocket scientist to know how to invest. It is all about going back to the basics, fundamentals and foundations (whatever you want to call it).
Earnings, earnings and earnings. Be it you want to term it as cash flow (if there is a high risk of accounting manipulation), ebitda, ROE or equivalent, only earnings growth can support a sustainable upward trend in the share price of a company. There could be short term “noises” in the share price which may be due to changes in market sentiment or emergence of a macro event. Always ask yourself these questions:
- Is the company’s business model sustainable?
- What are the recurring core earnings as well as sustainable earnings growth?
- Is revenue growing?
- Business cycle – growing or maturing?
- Any other positive catalysts?
- How are macro events impacting on the company?
My second emphasis is margin of safety. Have you accounted appropriately for the risks? You probably have done a detailed assessment / valuation before you buy into a company. There is always a chance that you may be wrong or imprecise in your assessment. Have a sufficient margin of safety.
My last point is improbable events or black swans. These events do happen and will happen again. They will rewrite the fundamentals that you may have known all these while. Examples of these events: wars, technology breakthrough, global disasters, epidemics, etc. Know how to plan for them, as well as to capitalise on them.
Always analyze the numbers, financials, data, stats and news to uncover your truth about investing.
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