How I get my investment ideas – Part I

How I get my investment ideas - Part I

I’m often asked, by novice and experienced investors alike, “How do you get your ideas?”

There is no magic font of knowledge.  It’s all down to hard work.

In addition to economics, accounting, econometrics, and statistics, I also studied history and languages at university.  I did two degrees.  One in Economics, one in Asian Studies.

I draw heavily on the discipline of history in my investment research.  In history, a clear distinction is drawn between “primary” and “secondary” sources.

A primary source is a contemporaneous record of events from a period in history, for example, the marriages and deaths register from a medieval church, or a diary written by a soldier on the battle-field.

A secondary source is an account of history offering someone’s interpretation of historical events. It was written after the fact. 

It’s an important distinction.  Just as I prefer to read raw, unfiltered views of history and then make up my own mind as to the significance of the facts or events described, so too when I am doing investment research. 

My primary source is company announcements to stock exchanges, and financial statements and data.  I don’t look for inspiration in analysts’ reports or journalists’ articles.

There is a chapter in the book I helped my friend Mark Tier write back in 2003, The Winning Investment Habits of Warren Buffett and George Soros which we titled, “Start with the A’s.”

That’s literally what I do.

I will go to a website, such as this excellent resource for company reports from firms domiciled in Africa, for example, and just go down the list one by one until I find something of interest for further research.

In Australia, a market I have followed since 1998, I will glance at most of the day’s announcements to the stock exchange, each trading day.  It sometimes throws up ideas. 

Screeners, such as Guru Focus, can provide good short-cuts to generating a short-list for further research.  But due to incorrect data, false positives are very common, as are omissions (which you’d obviously never know about if you didn’t have another, primary, source of information as well.)

There really is no substitute for reading company filings and annual reports.  It’s also what Warren Buffett does nearly all day every day.  But most people are either lazy, or not interested.  That’s totally understandable. 

If you don’t like rolling up your sleeves and spending the time doing your own research, then your best bet is probably to delegate your investment decisions to someone like me, or Buffett, who does.  And that’s one of the reasons I publish this website.  If you’re interested in piggy-backing off my research, then you might like to sign up below and start enjoying the fruits of my labour, today.