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1/ Investment Decision Process
Every investor needs to have a process.
Pitching yourself a stock is a great habit to ensure you have conviction in an idea.
My process was developed through research & reading. It is still evolving.
Time for a thread
Every investor needs to have a process.
Pitching yourself a stock is a great habit to ensure you have conviction in an idea.
My process was developed through research & reading. It is still evolving.
Time for a thread
2/ A Few Questions to Ask
1) Why does the company exist?
2) What is the product / service use case?
3) How does the company make money?
4) Experience created for the user?
5) Durable Moat?
6) What is the TAM? Expanding?
7) Competitive landscape?
8) What are the risks?
1) Why does the company exist?
2) What is the product / service use case?
3) How does the company make money?
4) Experience created for the user?
5) Durable Moat?
6) What is the TAM? Expanding?
7) Competitive landscape?
8) What are the risks?
3/ Identify Critical Factors (CFt)
I identify CFTs w/ value-added research
A CFt will materially impact a company’s
1) Earnings or CF growth,
2) Returns,
3) Probability of a corporate event, or
4) Volatility profile
My CFt MUST have an associated catalyst w/in my time horizon
I identify CFTs w/ value-added research
A CFt will materially impact a company’s
1) Earnings or CF growth,
2) Returns,
3) Probability of a corporate event, or
4) Volatility profile
My CFt MUST have an associated catalyst w/in my time horizon
4/ A View Different from Consensus
Is my view on a CFt different from consensus?
I believe markets are efficient in the LT, so a stock price will eventually move from consensus to my view (based on CFt)
This means I can generate a compelling return (Alpha) if I'm right
Is my view on a CFt different from consensus?
I believe markets are efficient in the LT, so a stock price will eventually move from consensus to my view (based on CFt)
This means I can generate a compelling return (Alpha) if I'm right
5/ Am I Right?
Some get so caught up in being contrarian, they forget this important piece of the puzzle
I use @mjmauboussin’s BAIT framework to test if I have an advantage:
BAIT: Behavioral, Analytical, Informational, Technical
Advantage = Conviction
https://www.bluemountaincapital.com/wp-content/uploads/2019/02/Who-Is-On-the-Other-Side.pdf
Some get so caught up in being contrarian, they forget this important piece of the puzzle
I use @mjmauboussin’s BAIT framework to test if I have an advantage:
BAIT: Behavioral, Analytical, Informational, Technical
Advantage = Conviction
https://www.bluemountaincapital.com/wp-content/uploads/2019/02/Who-Is-On-the-Other-Side.pdf
6/ What is the Market Missing?
Is this too good to be true? Why is there a mispricing?
I must identify the cause of the mispricing in order to move forward
Usually an error in the dissemination, processing, or incorporation of info results in the market being wrong about a CFt
Is this too good to be true? Why is there a mispricing?
I must identify the cause of the mispricing in order to move forward
Usually an error in the dissemination, processing, or incorporation of info results in the market being wrong about a CFt
7/ Identify the Catalyst
When & why will the situation change? How will the market figure it out (maybe how I figured it out)?
There must be a specific event that will occur w/in my time horizon to make investors realize that consensus is wrong, & reprice the stock to my view.
When & why will the situation change? How will the market figure it out (maybe how I figured it out)?
There must be a specific event that will occur w/in my time horizon to make investors realize that consensus is wrong, & reprice the stock to my view.
8/ Risk / Reward
Based on my research & analysis, how much can I gain or lose?
Fundamental research AND technical analysis will provide this answer
Even if I LOVE a company, I will not invest unless the technical setup is compelling
A great company isn't always a great stock!
Based on my research & analysis, how much can I gain or lose?
Fundamental research AND technical analysis will provide this answer
Even if I LOVE a company, I will not invest unless the technical setup is compelling
A great company isn't always a great stock!
9/ Pre-Mortem & Last Q
Final Questions:
My investment failed miserably, what are all the ways it could go wrong?
Who’s on the other side of the trade? Why are they right (and I’m wrong)?
I have conviction when I fully understand the opposing argument and trade.
Final Questions:
My investment failed miserably, what are all the ways it could go wrong?
Who’s on the other side of the trade? Why are they right (and I’m wrong)?
I have conviction when I fully understand the opposing argument and trade.
10/ Conclusion
I think this thread is more helpful than specific metrics & fundamentals I look for (happy to provide in a separate post or DMs)
Company analysis is my passion, please share any feedback and ideas!
This my (abbreviated) framework and process. What is yours?
I think this thread is more helpful than specific metrics & fundamentals I look for (happy to provide in a separate post or DMs)
Company analysis is my passion, please share any feedback and ideas!
This my (abbreviated) framework and process. What is yours?
