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  • Writer's pictureIshfaaq Peerally

Investing is Simple



🤔 I've seen two common 𝙖𝙥𝙥𝙧𝙤𝙖𝙘𝙝𝙚𝙨 𝙩𝙤 𝙞𝙣𝙫𝙚𝙨𝙩𝙞𝙣𝙜, sometimes it is too simple. Some people think that just looking at the PE ratio is enough to know if a company is a good investment and then we have others who complicate things, they build complicated models on Excel. We even have analyses based on conspiracy theories nowadays, coming from a famous subreddit.


💸 First you need to know which 𝙩𝙮𝙥𝙚 𝙤𝙛 𝙞𝙣𝙫𝙚𝙨𝙩𝙤𝙧 you are. In the first chapter of Benjamin Graham's The Intelligent Investor, he talks about Defensive Investors and Enterprising Investors. Enterprising investors do not take more risks, they just dedicate more time to investing and, therefore, can seek higher returns. Of course, their analyses are going to be a little more complicated.


⛵ As a 𝘿𝙚𝙛𝙚𝙣𝙨𝙞𝙫𝙚 𝙞𝙣𝙫𝙚𝙨𝙩𝙤𝙧, you should focus mainly on well known US Stocks and you should look at some of the main metrics such as PE ratio, PB ratio but also you need to understand how these numbers are calculated. For example, if you want to invest in McDonald's $MCD , you need to understand why the revenues are going down and why this is a good thing. For defensive investors, the pool of investment opportunities are limited but you can always find them. For example, Apple $AAPL in 2016 and 2018 became very cheap and this is not a complicated business to understand.


🚀 For the 𝙀𝙣𝙩𝙚𝙧𝙥𝙧𝙞𝙨𝙞𝙣𝙜 𝙞𝙣𝙫𝙚𝙨𝙩𝙤𝙧, there's more work. If you're looking at Rolls Royce $RR.L , you need to look at each business segment separately and try to see how they are going to grow and then see how the issuance of new shares will affect the investments. When I invested in GameStop $GME in 2019, it was because I saw that the losses were only impairment of goodwill. Therefore, you need to be able how to interpret financial statements and know what is important or not.


⚠️ You should, however, not overcomplicate things. It is not important for you to predict exactly how many PS5 or Xbox GameStop is going to sell to find the intrinsic value. You can take an approximate estimate based on the business fundamentals and then apply a margin of safety. If you understand the business, the numbers are just here to complement the business. And to avoid any error, make sure to take a 𝙈𝙖𝙧𝙜𝙞𝙣 𝙤𝙛 𝙎𝙖𝙛𝙚𝙩𝙮.


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