"Not everything that can be counted counts and not everything that counts can be counted" —Albert Einstein
Investing is part art and part science. The science part is easy; all you need to do
is look at the numbers. Review the company’s balance sheet, income statement,
and cash flow and you are halfway there. However, if successful investing were all
about the numbers and reading, accountants and librarians would be the highest
paying occupations. Such is not always the case.
The art part comes into play when after reading a company’s annual report
and the letter to shareholders, you ask yourself the following: How does the
company plan on expanding the business? What challenges does it see in the
future? Is it hungry? Has the CEO climbed to the peak and fallen asleep? You
can never get those insights just from the numbers. A good investor has to be an
investigative reporter. If the industry is changing and the company is starting to
lose market share, dig down deep and find out if the problems are temporary or
long-term. If temporary, hold on but if there is a long-term problem, be prepared
to sell and find a better investment.
Many great companies suffered problems that were only temporary and
other problems that were long-term. You must be able to distinguish between the
two. Financial statements can tell you only where a company has been. Keeping
a sharp eye out and listening hard will tell you where a company is going and
if their problems are just speed bumps or devastating potholes. There really
is nothing magic about stock success. It takes work, a business mentality and
approach, and a respect for the numbers.
Conclusion:
That’s all there is to it. If you stick with a philosophy that looks at stocks as
pieces of a company, ignore the daily ups and downs of the stock market, give
yourself a wide margin of safety, and buy companies with strong financials, it’s
hard to mess up.
Keep in mind that Stock market like to make things as complex as possible.
Investing isn’t that hard, it just requires you to stick to a few principles, keep
your head while others around you are losing theirs, and wait for your price.
Warren Buffett summed up stock investing by saying that:
"Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with managers of the highest integrity and ability. Then you own those shares forever."
I couldn’t have said it any better. 🙂 🙂
Investing Mantras 