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Being a great equity investor requires disciplined expertise in 3 areas:
(1) Financial Analyst
(2) Trader
(3) Portfolio Manager
The enduring success of legendary investor William O’Neil’s framework is based on this idea.
A thread
(1) Financial Analyst
(2) Trader
(3) Portfolio Manager
The enduring success of legendary investor William O’Neil’s framework is based on this idea.
A thread
1/ Financial Analyst
Expertise in financial statements analysis enables an investor to breakdown a business
Understanding how cash is generated (CF statement), profit is derived (income statement), and value is created (balance sheet) is critical in evaluating a company
Expertise in financial statements analysis enables an investor to breakdown a business
Understanding how cash is generated (CF statement), profit is derived (income statement), and value is created (balance sheet) is critical in evaluating a company
2/ Financial Analyst
A good analyst has a systematic process for 1) generating ideas and 2) separating ideas into actionable vs. not actionable
A good analyst has a systematic process for 1) generating ideas and 2) separating ideas into actionable vs. not actionable
3/ Financial Analyst
A great idea is like a great @MLB prospect – rising from the farm league (9-months away) to the major leagues (current portfolio) in a predictable manner
A great idea is like a great @MLB prospect – rising from the farm league (9-months away) to the major leagues (current portfolio) in a predictable manner
4/ Trader
Being a dynamic trader comes from experiencing numerous market cycles (bear, consolidating, bull) and applying added skills towards the next market cycle
The best investors have a flexible mandate and have the ability to modestly adapt to the current market environment
Being a dynamic trader comes from experiencing numerous market cycles (bear, consolidating, bull) and applying added skills towards the next market cycle
The best investors have a flexible mandate and have the ability to modestly adapt to the current market environment
5/ Portfolio Manager
A great Portfolio Manager stems from the ability to optimally construct a portfolio
The most important factor in constructing a portfolio is sizing a position correctly
Winning positions are the difference maker in a Portfolio Manager’s year
A great Portfolio Manager stems from the ability to optimally construct a portfolio
The most important factor in constructing a portfolio is sizing a position correctly
Winning positions are the difference maker in a Portfolio Manager’s year
6/ Portfolio Manager
A winning position should be held for an extended period of time, increasing the size of the position when the thesis is reinforced by the mgt team & business results
Most managers exhibit loss aversion bias, never adding meaningfully to a winning position
A winning position should be held for an extended period of time, increasing the size of the position when the thesis is reinforced by the mgt team & business results
Most managers exhibit loss aversion bias, never adding meaningfully to a winning position
7/ Portfolio Manager
A losing position should have little impact on total portfolio performance
If the position is losing a manager money, revisit the thesis, and quickly decide whether to increase, decrease, or exit the position
A losing position should have little impact on total portfolio performance
If the position is losing a manager money, revisit the thesis, and quickly decide whether to increase, decrease, or exit the position
8/ Don’t fight the market – adjust a position until the picture becomes more clear
Mastering all three areas is unique, usually a professional investor has 2/3 skills, but rarely 3/3
Most institutional investors go their entire career without fully mastering all 3 disciplines
Mastering all three areas is unique, usually a professional investor has 2/3 skills, but rarely 3/3
Most institutional investors go their entire career without fully mastering all 3 disciplines
9/ An investor can improve a focus area by performing an annual “post analysis” by tracking decisions vs. outcomes over time
Each post analysis should culminate in 1-2 rules that a manager can use over the next market cycle, allowing a manager to evolve by adding new skill sets
Each post analysis should culminate in 1-2 rules that a manager can use over the next market cycle, allowing a manager to evolve by adding new skill sets
End/ This multi-faceted approach to investing has vastly improved my decision making and portfolio returns over my career
I hope you found this framework helpful and developed a few ideas to improve your own process
I hope you found this framework helpful and developed a few ideas to improve your own process
