In this edition of Investing chronicles, Lockstep CEO Paul Farah recaps his most valuable investing insights. Whether you’re new to investing or a seasoned pro, this comprehensive overview serves as a handy reference.
Today, I thought summarising the topics we’ve covered so far would be valuable.
This will help newcomers easily navigate to topics of particular interest. For our regular readers, this is a handy “table of contents” available whenever you need it.
Summary of what we’ve discussed (thus far)
Don’t try to predict the future: In this article, I discuss a common mistake among investors: trying to predict trends. I use the example of Tomi Environmental Solutions (TOMZ), a decontamination company I invested in, believing that disinfection would become a lasting trend post-pandemic. I was wrong, as the world quickly reverted to old habits.
Where to invest your money: Only 12% of professional fund managers in the US have outperformed the market over the last 15 years. I show you how easy it is to outperform almost 90% of the pros by investing in index-tracking funds. I also explain why I don’t.
How to find new stocks to invest in: For those not investing in index-tracking funds, I discuss using stock screeners, fund letters, 13F filings, forums, and insider buying to find new investment ideas.
Know when to sell: One of the most common concerns in investing is knowing when to sell a stock. I outline the three scenarios that dictate when I sell a company, using Legacy Housing Corporation (LEGH) as an example.
Investing risk: Investing in the stock market is often perceived as very risky, especially by those unfamiliar with investing. I discuss common misconceptions about investment risk and how I view and mitigate it.
Five steps to analysing a company: Understanding risk is crucial, and knowing a company’s true value helps us reduce that risk. Here, I share my five-step approach to evaluating a business’s value.
Economic moats: Finding companies with durable competitive advantages is considered the Holy Grail to investing success as it dramatically reduces our risk. I explain economic moats and why they matter and provide examples, including The St. Joe Company (JOE).
We can beat the pros: Investing is a unique endeavour as it is one of the instances in which the individual has an advantage over professional money managers. In this article, I explain why and provide a valuable resource to help individuals beat the market and outperform the pros.
Principles I follow for better investing: I share five fundamental principles I look for in every business I invest in. Sticking to these principles has significantly increased my success in both my professional and personal investing.
How to avoid emotional investing: If you want to be a great investor, you must learn to leave your emotions out of it. I believe the key to this is having realistic goals and expectations. Let’s discuss.
Liquidation value of a business: In a previous article, we discussed the concept of a margin of safety. Here, we delve into the liquidation value of a business as a safety net – what it is and how to calculate it, using Legacy Housing Corp (LEGH) as a real-life example.
The value of a business: At its core, investing is about laying out money today with the expectation of receiving more in the future. Therefore, estimating a company’s future earnings rather than its past is essential. I use Innoviva (INVA) as a case study to illustrate how to do this.
Correlation between earnings and share price: We’ve discussed how a company’s value is its future earnings. In this article, I give you proof, showing how a company’s share price closely correlates to its future earnings growth and discuss why this is significant.
Please invest for the long-term: Many people invest for the thrill of it, yet this is often a losing game. When done right, investing should be boring because it isn’t going to give you an adrenaline rush. In this article, I show you why long-term investing significantly increases your chances of increasing your wealth.
The benefit of spin-offs: I’ve shared resources to help you find your next great investment. Another potential investment strategy is looking at spin-offs. I discuss what they are and why they can be exciting opportunities, using Illumina’s (ILMN) spin-off of its cancer-detecting business, Grail (GRAL), as an example.
There’s plenty more to discover with Lockstep.
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DISCLAIMER
Paul Farah has worked in financial markets since 2006, holding positions at prestigious firms from New York to South Africa. Now, he manages his own money and provides access to his entire portfolio through his company Lockstep Investing. The views and opinions shared are his own and are for informational purposes only, they are not intended to serve as investment advice and do not represent the views or opinions of Standard Bank. This information should be used as a starting point for generating investment ideas, and should not be relied upon as the sole basis for making investment decisions. Lockstep Investing (PTY) LTD and the Standard Bank of South Africa Limited will not be responsible for the results of any investment decisions made based on the views provided.
