How to invest - part 1. Preparation - How - First Part

Hello guys!

In this post I shall be taking about the How of it all.

This will probably make up the bulk of Part 1. Preparation, since it's all about the actual steps you will need to do. So, Imma break this section into a several parts (yes, I know I need to have a better way to name different sections other than 'parts').

Ok, before we get into it, we've so far covered:

What is needed in the preparation for investing

You need to form your own investment statement; these 3 questions will greatly help you to do just that:

A. What does this company do to provide value to its customers? 

B. What is the company doing right that translates into more revenue, more profits, more cash flow and ever growing market cap? 

C. What needs to happen in the future, for the company to continue growing? What would cause the opposite to happen?

When 

When do you need to prepare and review the investment statement?

Before investing and after each quarterly earnings/annual report is out.

Where

The main points of reference would be:

1. The quarterly and annual reports.

2. The earnings call + transcript.

3. Google and youtube case studies

4. Other people's research.

Right, so we're ready with the How. Christ, here we go with the snapshots - I'll be using PagerDuty (PD) as my case study since it's been a do-gooder in my books. I'll assume this is the first time I'm researching about PD, having heard about it somewhere in the Internet.

At this stage, I'm just a blank slate

So, first step: Google and Youtube PD. I know nuts about the company, and I only want to know what does this company do and how does it make money doing whatever it is doing. 

Youtube

I usually go youtube first because chances are there is someone who has already done the research legwork or better yet, a video from the company itself about itself and its products/services. 

Remember: Don't get suckered into the story/narrative - try as best to be objective and look at the facts of the company!

Awesome, first result on Youtube and right there is a primer on the PD platform by the company itself.

I've included that video here too so that you can also watch, try to absorb and understand what PD does:

So, from the video, I gather they help organisations to resolve issues in their operations, which used to be quite manual since an issue would have to be manually reported by either customer or someone using the service/product, then that issue will have to be looked at by someone and then he/she will have to manually assign the right person(s) to resolve that issue. 

Think of the times when you had to submit a support ticket (if you ever did) and the wait times between each interaction with the support staff - I remember in the 2010s that could take up to days! In today's landscape, time is a scarce commodity and this is where PD adds value.

So, PD steps in by automating the above process quickly, and also:

1. provides 24/7 support - being always online

2. connects individuals and teams across the organization so that issues can be resolved quicker, findings of an incident can be shared with everyone, best practices can prevail because of this collaboration.

3. collects signals from all points of the organisation - that means, whatever the device, app, program, service that is being used in the organisation, a data point from that will flow into the PD platform where it will be aggregated with all other signals to detect if there is an incidence and better yet,

4. to predict if any incident may occur, and direct resources there before it happens or as soon as it happens - this possible with them using machine learnings, collecting all those signals and having a good analytics to make sense

So just by looking up youtube, we've gotten this much of a background! And there are more videos out there we have not touched yet !

Next, Google. I'll usually google *Company Name* + Wikipedia coz Wikipedia does a good job at summarizing stuff !

PagerDuty - Wikipedia (Click the link for the actual wiki page)

Clicking on the link will bring me to this page:

Ok so we can see PD is in the business of "SaaS incident response platform for IT departments." Great, cool, awesome, nice but wtf does that all mean?

Well, we'll just have to google incident response:

Another google result gave me another one:

Right, so the definition we get from googling it is that an incident an attack or breach of a company's systems which is likely to be its networks and everything inside it; an incident response then is how the company handles said incident.

So, with this preliminary research, we can safely say:

PD is a SaaS company which provides an incident response platform for IT departments. Copy pasting from earlier, PD provides automation for incident response and also:

1. provides 24/7 support - being always online

2. connects individuals and teams across the organization so that issues can be resolved quicker, findings of an incident can be shared with everyone, best practices can prevail because of this collaboration.

3. collects signals from all points of the organisation - that means, whatever the device, app, program, service that is being used in the organisation, a data point from that will flow into the PD platform where it will be aggregated with all other signals to detect if there is an incidence and better yet,

4. to predict if any incident may occur, and direct resources there before it happens or as soon as it happens - this possible with them using machine learnings, collecting all those signals and having a good analytics to make sense

Ok, so we now know what the company does (incident response) and how does it add value (automation, predictive analytics, greater collaboration between teams for better outcomes).

At this stage, I already have some thoughts:

1. As the worldwide trend is moving towards digitalisation, that will mean more parts of a company will be online for more and longer - which means there will be increased number of incidences or events. So, the IT department will be more crucial now ergo PD will shine here.

2. SaaS companies are high growth, and share singular characteristics like high FCF margin, high GPM, increasing revenue growth % - for me, I have been investing in these companies so these metrics are something I am familiar with and know what to look for; it is within my - as Buffett says - circle of competence, and I feel comfortable knowing what to look for and look out for.

3. I did not include a snapshot above, but there are some notable customers in PD's stable (is it right to call your customers as part of your stable? Hmm) like Zoom, priceline, DropBox, Yelp, Evernote, Okta, Shopify and even Xero - some of these you may have heard or even used them and all of them are pretty big names.

Ok, you shouldn't solely just go with name drops but think about it, these are big HUGE companies with elaborate operations spanning the globe and across many industries, and they trust PD with the sanctity of their operations. That's some food for thought there.

Ok, so you now have some background info to go by and some facts you can use too. Alright, I shall continue with the other 4 methods next!