At lunch the other day with dad and his accountant (who's helping us setup our own super fund) we got onto the subject of stocks. Anyone who's ever played the market has at least one story of woe and after sharing a few of those I got thinking about how we're picking these stocks.
A few years ago I jotted down my thoughts on investing. At the time, and I guess its still largely true today, I believed very much in selecting companies based on their products/services and business models, and how feasible it was to keep abreast of developments in the industry (think competitive threats). There should've been some focus here on financials but at the time I didn't really understand the numbers so little attention was paid to that side of things.
On the other end of the investment strategy spectrum are the chartists practising technical analysis. I've always thought it was bogus to focus so much on fancy graphs and numbers which appear to largely ignore the company's products, strategy etc ... those fundamental things that should dictate whether a company is successful or not.
After some years of observation its pretty clear that neither strategy works on its own. Fundamental analysis might well identify solid businesses but fails to acknowledge the significant effects of investing psychology, especially herd mentality. There is the classic long vs short term investment argument however the effects of the thundering herd can sometimes be so significant as to make even long term play unprofitable.
Apologies to anyone who thought there may be a tip or two here. :) This post (and blog) is mostly for me to reflect upon in another few years when I'm sure my thoughts on this subject will have changed again.