What’s better, stocks or bonds? Well it depends.
If we were looking to for capital appreciation, then stocks are better. But if you wanted to create a steady reliable income, bonds are better.
That’s the common thought anyway.
But according to legendary fund manager, Peter Lynch, whether you want capital growth or income, stocks are the only answer.
Wouldn’t it be great to know the future? Sure it might take the spontaneity out of life. But you could become the best investor ever.
There is no such thing as a perfect investment record. Everyone picks up some losers along the way. But if you had an idea of what might happen, you could avoid the ‘bad eggs’ as they say.
This is what financial models try to do. They predict what might happen in the future. Not just profits, but revenues, debt, cash flows and a bunch of other business fundamentals. Judging by the calibre of investors that use financial models, from investment bankers to private equity firms, you’d think they’re the best way to value businesses.
And maybe they are…for the short-term. But I’d argue financial models are a lot less useful than most investors believe.
There are two types of value investors. Those in the Benjamin Graham camp (value) and those in the Warren Buffett camp (compounders). Both look to buy business for far less than they’re worth. However, that doesn’t mean they both look for the same types of businesses.
This month we’re going to look at two screens. Each screen includes 20 stocks which are spread across US, Australian, Canadian and London exchanges.
I can’t put any top spin on the ball. My backhand usually lands outside the lines. It’s safe to say I’m no tennis pro. But that doesn’t stop me from trying.
If you’re an NBA fan, you’ll notice teams are getting smaller. Long gone are the days of the 7-foot center and the 6’9 power forwards. In today’s game, the big man isn’t just required to rebound, protect the rim and score. They also need to help with switches, shoot the mid-range and keep up with the guards.
If I’m honest, I miss the days of big men playing with their backs to the basket. But many teams have now craved out an edge with smaller, quicker teams that shoot three pointers at will. And just like NBA general manager, you also have to define your edge as an investor.
There are usually two camps among value investors – value and quality. Those in the value camp are Ben Graham followers. They’re always looking for cheap opportunities and buying business far below their intrinsic value.
Those in the quality camp prefer Warren Buffett style investments. These are businesses with durable economic moats and can continue to compound your investment for years into the future.