How to invest - part 1. Preparation - When

So going back to the how to invest series: Part 1. Preparation.

We covered what it is you will be preparing: the investment statement or investment thesis.

To summarise, with an investment statement,you should be able to explain what does the company do to provide value to its customers, what is the company doing right that gives it a good performance (more revenue, more profits, more cash flow and growing market cap), and what needs to happen in the future, for the company to continue growing, and what would cause the opposite to happen?

So in this post, we will be going through the when of it all.

So, you should ideally prepare the investment statement before you invest - I mean, without it there's no conviction for you and conviction is the name of the game here. 

Then, after you invest, you need to rcontinually follow up with the company's developments every quarter & annually ie read up on its quarterly earnings call transcript and/or listen in on the call, and read up on the annual report too. A good tip here is to list down projects and initiatives which the management has disclosed either in the quartelies or annuals. That way you can objectively see if the company has been able to deliver on their promises, and if there are setbacks, you can see how the management responds/mitigates this eg do they sweep it under the rug and not talk about it, give regular updates on why there is a delay in implementation, if they made a mistake did they own up,say so and share what they learned and how this will be reflected in future endeavors. 

BUT of course there are always exceptions - i.e. for stalwarts (a type of company - I subscribe to Peter Lynch's 6 types of companies and I'll talk abit about that in another post) like your Nestles and Microsofts. You would have bought and used stuff from these companies over your lifetime and essentially have a subconscious ranking for these companies - so, I would not say you don't need to prepare one, you do but chances are half or more of the work has already been done by virtue of you being a consumer and experiencing how well their offerings are, and you also would have been able to benchmark it against their competitors - so in this case, when you see their shares on a decline but their performance is still up to par with their upcoming products/services still excellent, and there is a favorable margin of safety, there is no harm in building up a position. Of course, please exercise portfolio management and never go all-in. And also make sure you follow up on the quarterlies and annuals. Just because a company has been a stalwart for the last 20 years, doesn't mean there isn't a chance they might slip up on the 21st.