Chris Berry sheds some insight on ways for investors to be successful when making decisions.
By Chris Berry
Stepping into the investing sector can be overwhelming, and newcomers will no doubt have a variety of questions before making any long-term decisions.
For starters, researching the company an investor is interested in is key, but should also take time before making a decision.
Following the markets and staying up to date on news is also important–as they are volatile and can fluctuate on a daily basis–thus, investors should never ignore what the market is saying.
Key strategies include:
- Remember: Junior mining isn’t investing– it’s speculation. As such, traditional investment analysis does not apply/work.
Watch out for private placements unless it’s an IPO and you can sell to the “greater fool”.
- A resource play must have secondary listing. NO strictly bulletin board plays.
- Management must own shares (not gifted).
- Read every financial docment (10Q, 10K, annual report) in reverse chronological order.
- Read sell side research only to gauge consensus.
- Parabolic stories always end in tears. Mean reversion is as sure as death and taxes.
- If it’s too good to be true, it probably is.
- If the company won’t expand on a claim made in a press release–run away FAST.
- Vague press releases are vague for a reason.
- When investing, ask yourself if you’d rather be late and right, or early and eventually wrong.
- What is the company’s “Plan B”?
- Why would a company take on debt if the company isn’t generating revenue to service the interest payments?
- What does management take home in cash relative to the market cap?
- How “disruptive” is the company’s asset/technology/competitive advantage?
- What is the company’s dilution strategy on philosophy?
- What are the factors that will drive revenue/cash flow/earnings growth?
- When a stock falls big in an up market, management must respond. If they don’t–sell immediately.
- A great deal of insight can be gleaned from watching volume and options activity of a company.
- Don’t chase the market up OR down.
- You’ll never go broke taking profits.
- If you argue with a fool it is very likely he/she is doing the same.
- Don’t average down, average up–you have less $$ invested in stocks that don’t work, and more invested in those that do.
- You have to remain agnostic and CAN’T FALL IN LOVE. Especially with commodities.
- Think about the percentage weightings of each stock in your portfolio–in absolute terms and relative to the market caps.
- Do you want to get on base or hit home runs?
- Don’t ignore what the market is telling you.
- Capture macro uncertainty with the discount rate. The sell side almost always puts this too low.
- NEVER add to losses.
- How much is the company management paid and how? (Cash? Shares? Options?)
- Phony and short lived booms destroy more value than they create.
- What is a SG&A as a percentage of market cap?
- Limit the shelf life of your trades.
- Opportunities must grow at least double GDP.
- Follow the trendline, not the headline.
- What is most important is what ISN’T in the press release vs. what IS (eg: average selling price to an unnamed off take partner but no mention of costs?).
- Think about the sustainability of a given business model.
- There is a different pitch to institutional and retail investors.
- Economics (of a deposit, of a manufacturing line, etc) MATTERS! It’s great if a company can produce something at a bench scale, but what about everything else? Can they produce something at a loss and then still profit?
- How you think matters more than what you know.
- Skepticism and independence are worth more than you can calculate.
- As Charlie Munger says, “The way to minimize risk is to think.”
- He also says, “Invert, always invert.” Re: your investment thesis.
- You don’t have to make money back the same way you lost it.
Analyst thought process:
- What is the goal of the business?
- How does the business make money?
- How well is the business doing?
- How is the business positioned relative to its competitors?
You have to know your own strengths, weaknesses, and biases.
Be sure to do a post mortem on past wins and losses. How much luck was involved versus skill?
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About Chris Berry: Chris is an analyst, who focuses on how disruptive trends in energy, strategic metals, and technology create opportunities.