Chapter 6Research Like a Businessman
In God We Trust, All Others Must Bring Data
— William Edwards Deming
Once we run our screens together with our “5-Fingers Rule”, we should be left with a manageable number of companies. But before rushing in to buy any of these investment opportunities, we always have to ask ourselves these key questions:
- What is the key value of the company? Is it based on assets, earning power or growth?
- What are the key opportunities?
- Do I understand the business model?
- What are the key risks?
- Is our margin of safety sufficient?
Humans are emotional creatures. However, to make good investment decisions, we have to take our emotions out of the picture. That is why we need to have a structured investment process. These questions are a critical part of that process as they force us to form the investment thesis for the company in a logical manner.
At the end of the day, what we are doing is to convince ourselves both quantitatively and qualitatively that this is a worthy investment opportunity for us to act upon. Moreover, it always helps when we are supported by facts and logical reasoning, and not based on “what a little bird told me” or that “this feels right”. Investment decisions are best made without the presence of emotions.
To make such informed decisions, we need to use good data. And in order to use good data, we need to know how to obtain good data. Otherwise it might end up being a case of “garbage in, garbage out” – incorrect or poor-quality ...
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