Wednesday, December 8, 2021

How to invest - part 1. Preparation - Where

 Hi guys!

So today, still on the topic of preparing your investment statemet - we now move on to the Where

Where would pertain to places you can find this info for your investment statement

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.

1. The quarterly and annual reports
These can be found on the company's investor relations website - the actual reports.

I've heard some people tell me reading the annual report or even quarterly reports can have an effect as pronounced as a couple of sleeping tablets, so if you find yourself nodding away, just make sure you get these key points:

A. The chairman's statement
B. Management Discussion and Analysis
C. The financials (look at year-on-year % change, or 12 months to date):
- Revenue 
- Gross profit margin
- Net profit margin 
- Return on Equity  
- Free cash flow margin
- Current and Cash ratio
- Debt to Equity ratio
D. Risks to the business 

Of course, I really recommend you read through it but baby steps is better than no steps!

 2. The earnings call + transcript
These can be gotten from well, just googling them - often you are able to watch the live or recorded earnings call from the company's investor relations but some companies tend not to keep them on the server so your next bet, Google, will direct you to one of the many financial news sites that keeps a copy of the transcript and/or audio of the call.

Keeping up with the earnings call will be KEY to you being on top (or bottom, if you prefer) of things and be able to make decisions on the go about your investments.

Why? Simply because the bulk of your initial work will be derived from the annual reports and youtube videos which explain what the business of the company is all about, how do they make money etc. Then, the quarterly earnings calls are when the management briefs you directly about the comings and goings in the company, provide updates about past efforts and the results of ongoing initiatives. In the earnings call, you also get to hear from analysts from various fund houses, investment arms etc who will often have very targeted questions about certain parts of the business and the performance of the business. I highly recommend listening/reading the earnings call/transcript just so that you can better understand the business, be aware of metrics and factors these stock analysts raise to the management - which can be useful, or not to you but knowing about them is surely better than not knowing (because, it's better to know what you don't know than not knowing what you don't know), keep abreast with the business performance ie are the metrics being met or is the company's performance not keeping up to your expectations?

3. Google and youtube case studies
Well, this should actually be the first point la haha since it's always easier to digest content in bite-sized or short videos  vs reading a wall of text in the annual reports.

Ok, so you googled and youtube-d the company you are interested in, this should give you somewhat of a crash course about company ABC; what does the company do, the management team, the business in the last couple of years or since IPO or even before IPO, the external factors affecting the business, as well as developments within the company (R&D, notable employees etc).

The main thing I would like to highlight is that for all the articles, research and videos produced by these various helpful guys, is that most will have an agenda, a narrative, a purpose, a biasness to the company because think about it: If I have a vested interest in company ABC, would it be natural for me to tend to point out the good things more or highlight the facts which support my investment statement? So, take the facts, and fry the emotions that they invoke in you (Did I just say fry the emotions? Jeez this coffee is real strong). Do your own due diligence by cross checking whatever OPINION they put out. Don't just take what someone on the Internet said, at face value. Heck, fact check whatever I write too. 

Like it is said in a buddhist sutra:
"Don't blindly believe what I say. Don't believe me because others convince you of my words. Don't believe anything you see, read, or hear from others, whether of authority, religious teachers or texts. Don't rely on logic alone, nor speculation. Don't infer or be deceived by appearances. Find out for yourself what is true and virtuous."

I'm not a buddhist but I thought that quote is pretty cool and practical. 

4. Other people's research.
Like what I said in the previous point, take whatever the research with a pinch of salt. Trust me, when you read someone's case study and the narration that has been written - which is essentially a story and we humans do like a good story - is so compelling that it makes you go, "Fuck yes, this is the best thing since toast bread and butter", emotions will tend to overrule logic, and in investing you want to avoid that as much as possible. Gut feeling and emotions have a place but logic should always prevail.

The goal of reading up on other people's research is twofold:

1. They would have done the prep work and gotten all the important info and facts ready, and presented to you nicely.

2. When you read multiple research from difference people, you can get a sense of whether or not this particular dude/dudette is just shooting from the hip and doesn't know what he/she is talking about OR this person really knows his/her stuff and it would be worthwhile to follow them/he/she.

3. Also, following on the previous point, you can corroborate the facts too - basically just fact checking but communal, if that makes sense.

So other people's research is really just a subset of Point 3 but I felt that I had to underscore the importance of detaching your emotion when you read someone's research - don't blindly believe in the facts and story that your emotions get swept in the possibility and big picture. Your own due diligence is your protection against bullshitism and its results will form your conviction, which in turn will help you be successful in stock investing. 

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