11-12-2023, 09:17 AM
When I first started to learn value investing about 20 years ago, I had already spent about more than 2 decades in the C-Suite. I thought that there was sufficient experience to enabled me to easily analyze companies.
I quickly found (through losing money) that analyzing a company when running a company is different from analyzing it as a retail investor. When you run the company, the analysis is about finding opportunities and addressing weaknesses. Techniques like SWOT analysis can be useful.
But as an outsider analysing companies from data provided in the Annual Reports, you are not running the company. If you identified opportunities, it does not mean that the company have seen them or will take advantage of them. When you see weaknesses, you cannot assume that management are able to address them.
As a retail investor, you have to accept the company’s results and direction as they are. Unless you are an activist investor, you cannot change the company’s path.
That is why I look at historical operating trends as this provide a better picture of what happened and the company’s trajectory. I then accept them as they are and try not to be too clever to project paths that the company may not take.
Moral of story? Many of the MBA-type analysis meant for CEO to identify issues and direct the company’s may not be relevant.
For more insights in analysing companies go to “Can we learn anything from investment case studies? “
I quickly found (through losing money) that analyzing a company when running a company is different from analyzing it as a retail investor. When you run the company, the analysis is about finding opportunities and addressing weaknesses. Techniques like SWOT analysis can be useful.
But as an outsider analysing companies from data provided in the Annual Reports, you are not running the company. If you identified opportunities, it does not mean that the company have seen them or will take advantage of them. When you see weaknesses, you cannot assume that management are able to address them.
As a retail investor, you have to accept the company’s results and direction as they are. Unless you are an activist investor, you cannot change the company’s path.
That is why I look at historical operating trends as this provide a better picture of what happened and the company’s trajectory. I then accept them as they are and try not to be too clever to project paths that the company may not take.
Moral of story? Many of the MBA-type analysis meant for CEO to identify issues and direct the company’s may not be relevant.
For more insights in analysing companies go to “Can we learn anything from investment case studies? “