Investment “vibes” can encompass a lot of things, so The Daily Breakdown dives into “Keep It Simple” investing, conference calls and more.
For those interested in other parts of the Fundamental Analysis Boot Camp, consider the following links:
- Boot Camp Day 1: Fundamental Analysis
- Boot Camp Day 2: Most Important Financial Terms
- Boot Camp Day 3: Key Ratios to Know
- Boot Camp Day 5: Value Investing vs. Growth Investing
Quick TLDR
- Moats matter
- Is simpler better?
- Don’t forget conference calls
What’s Happening?
The famous Warren Buffett of Berkshire Hathaway once said this of business moats:
“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”
K.I.S.S.
Sometimes it’s easy to overthink every little thing about a company or its stock — whether that’s reports in the media or even quarterly earnings reports. Sometimes, though, a simpler approach is worth appreciating.
Think back 10 years or so and imagine a consumer looking for a product to solve one of their problems. Many consumers might have gone on their Apple iPhone, Googled the problem, and then bought the solution on Amazon.
It’s no coincidence that Apple, Alphabet, and Amazon stocks have generated immense gains over the last decade. Even though all three companies have faced — and still face — plenty of scrutiny, the businesses have flourished over the years.
That’s an oversimplification of the situation, but that’s precisely my point: Sometimes the best businesses with the widest moats are sitting in plain sight.
Check out the eToro Academy’s Buy-and-Hold Approach
Conference Calls
It’s understandable that most investors don’t have the time to listen to dozens of conference calls every couple of months. Trust me, I get it. However, quarterly conference calls can be a wealth of knowledge.
Either listening to them live or finding the transcript works. I usually read the transcripts so I can search for specific items or talking points, but there’s nothing wrong with listening either. In many cases, management will shed a lot more light on the company’s situation — and on the industry — than what we see in the headline numbers (like earnings and revenue).
Consider this example.
A company misses on quarterly earnings and revenue estimates and provides a less-than-inspiring outlook for next quarter. Most likely, the stock will be punished in that scenario. But on the conference call, management explains that although they could have cut some corners to boost short-term results, they held back a key product update to make sure it was perfect for their clients — helping to ensure continued long-term growth.
Now, part of this evaluation boils down to management’s credibility — i.e., have they delivered in the past and can they be trusted? — but in this example, investors could see a short-term selloff that results in a great long-term buying opportunity.
However, many investors might miss this opportunity if they don’t check out the conference call and have a reasonable explanation for what went wrong.
The Bottom Line
Consider incorporating some conference calls into your analysis, even if it’s just one or two every few months. Perhaps for prospective investments, consider giving the most recent conference call a listen. To find these resources (and many others), investors can usually visit a company’s investor relations page. Just Google something like “Apple investor relations” or “AAPL investor relations” to find it.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.