Does Good Investment Require Good Research?

[SharperDingaan]

Yes.

 

If you have 20yrs of experience as an industry analyst for XYZ industry; you have become very good at using the financials to forecast eps and correctly anticipate whether a price/earnings expansion, or contraction, is likely to occur over the next 12 months. A very valuable skill set, that used correctly, should made the analyst very wealthy over time.

 

If you have 20yrs of experience as a senior financial manager in that industry; you have become very good at manipulating the financials that the analyst uses. Not fraud, or accounting tricks - just the proactive operating decisions that financials ultimately reflect. The business skills, that used correctly, will make the company either a success or failure.

 

The analyst, & the financial manager, are complementary partners; but the analyst has only a surface knowledge as to how the industry actually operates. Consequently to address the shortfall, almost all long lived industry analysts will have spent quite some time working in the industry they analyse - prior to becoming the industry analyst.

 

So ... if you haven't worked in that industry for some time as a finance manager, or accountant, are you really competent in it? Probably not. Does it matter? Not really; you just have to look better than your cohort, & if you all come from the same schools & are hired at the same time - a summers worth of experience in the industry may be all that you need to differentiate yourself.

 

You talk to the 'grey hairs' for a reason, & the grubbier they are - usually the better.

You'll also learn a few new words!

 

SD