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Five Tips from a Financial Analyst You Need to Know

What I love about investing is that it’s the ultimate gut check.

You can’t make money if you aren’t willing to put skin in the game. Nobody gets rich putting their money in 2% bonds. Yet, your approach should obviously be counterbalanced by risk management.  

During my six years as a financial analyst, my days were spent perusing numbers, analyzing projections, and reporting to upper management.

I’ve been blessed and have enjoyed success as an investor. Here are some of my philosophies. 

 

You should invest in things you understand and believe in

Warren Buffet once said that, “You should say you are buying businesses, not stocks.” His use of the word business is of the utmost importance—that’s what you’re really doing.  You’re becoming a partner. 

Rarely does someone start a business they don’t find interesting. Stick to what you know and like.

I’ll give you a specific example of how I chose a business. It coincided with my own personal changes. I went through a divorce and tumbled out into a single world that had completely changed. Gone were the days of getting drunk and buying a woman a drink.

Everything had shifted towards online dating. On a whim, I tried it and was blown away. I was going on dates several nights a week. It was easy to sift through and find the right match. 

Only a year after that, The Match Group, which owns a majority of the most popular apps, was initiating an IPO (“going public”). I was ready to commit. I believed online dating was the future. I’d used the product. The company had sound-enough financials.

Since buying, I’ve seen an 11x increase in the valuation of the company

In graduate school, one of my finance professors stressed the importance of why. Above all else, there needs to be an underlying reason behind your purchase, other than “I think it’s cool.”

Ironically, I don’t overthink financial analytics too much. You’ll never out-analyze big players like hedge funds. It is, however, worth asking some basic questions. 

Examples: 

  • Do they have a lot of debt?
  • Are they beating projections?
  • What are the analyst opinions? 
  • Is there competition that could hurt them in the future?
  • Are they “on to something” that others aren’t?  

Don’t invest in products you don’t understand or in industries you aren’t familiar with. 

Not only is it ill-advised but it’s also less fun. You’ll end up wondering what is going on with that money rather than rooting for the product. Invest in things you are a fan of and believe in. 

 

Some of the best buying opportunities are the most gut-wrenching

One of the hardest things about investing is the timing of those decisions. Buying opportunities often accompany bad news. It’s a matter of having a tough gut and picking investments that you don’t think will go bankrupt in the long run. Additionally, you must be willing to let your money sit for a substantial amount of time. 

I’ll give you an example of my exact calculus.  Back in Spring, every analyst on TV was saying, “sell airlines, sell airlines.” 

Though airlines had a harrowing journey ahead, I made a bet that they’d survive. 

Again, I didn’t know. My psychic powers aren’t fully functional yet. 

Buying when things are hot and safe is the easiest way to overpay for a stock. Conversely, not buying when the world is on fire is the path to painful omissions and regret.  

After all, some of the best buying opportunities in this nation’s history were in 2008. It’s during these moments that huge transfers of wealth occur. 

How did I pick my airline to invest in? There were a number of reasons but the final deciding factor is one I’m not proud of.

United Airline’s CEO, John Kirby, was caught in controversy in the worst of the pandemic. When I saw him on TV, getting in trouble for filling up airline seats, not having a space in the middle, I reckoned, “This guy is a hawk.” And I bought in and am already seeing returns. 

I very nearly did the same thing with TESLA when Musk was fighting about keeping his factory open, mid-pandemic.

Now I’m kicking myself. 

 

You shouldn’t be checking your stats 24-7

My grandfather was a great investor and did well in the markets. In fact, part of why I got into finance was because of my summers spent at his house. During the week, he often sat in the living room’s lazy boy chair, watching the investing channel stock ticker. He watched for hours and hours as the tape went round and round.

As a kid, I would groan, “Can we please watch something else?!”

He had a very intense relationship with money. He’d grown up in the throes of the great depression, and like many men of his era, he was very frugal and protective of money.

The instinct to over-monitor your money can be a portfolio killer.

One of the most fundamental lessons in finance, which is well known throughout the industry, is: “People who buy and sell often do worse than those who hold.” (On average.)

If you are constantly checking your portfolio, you’ll be more prone to panic sell. In my years of investing, I’ve always done far better by being less involved. 

Pick stocks you like. Buy them. Then close the books. Walk away. 

 

It’s OK to wait

The hardest thing to do sometimes is not buy. You see the stocks. You know what you want to get. 

Wait. 

Buying opportunities are not always there. I have a watch list of stocks I want to buy, and that I know, well think, will do well in the future. I set up alerts and wait for bad news.  

There’s no such thing as a ‘once in a lifetime’ opportunity to buy. If you buy and are fully confident that, “I’m going to make a fortune doing this,” you’re probably too confident. 

I try to be very thoughtful about my decisions with money. I mull over investments. They’re almost like a sales pipeline I’m working on in my head—considering, analyzing, researching. 

The decision to buy is never easy. I always feel a pit in my stomach as I click the buy button.

“Am I about to waste all this money I earned?”

“Is this company really as good as all the hype?”

“Am I crazy?”

Doubt is a good thing. It’s healthy. Think about your decision from a hundred different angles. 

Be an informed investor. 

And when you buy, don’t panic if things go down right away. The biggest investing mistakes I’ve ever made have occurred when I panic-sold.

 

Don’t forget the basics 

You shouldn’t have all of your stocks in one fund. But you also shouldn’t hedge away everything.

Hedging often shaves off the upside along with the downside. 

Index funds are a great, easy win to build up your confidence. You’ll be investing in 500 companies all at once.

You are going to be wrong sometimes. That’s ok. Don’t abandon all hope of doing well. Invest in companies you understand and believe in. Be patient. Don’t invest money you might need in the short term. 

Save for your future. I see money as security, not as a means of buying stupid toys and adopting expensive hobbies. Investing is one of the best ways to solidify your nest egg. Remember—do your homework. Study the stocks. Understand the businesses. Diversify. 

Best of luck.