Skip to main content

Five Reasons to Build Your Own Investment Models

Would you choose a prefabricated house or something you designed yourself?  
Take pride in what you build.

There isn't a correct answer, it's situational.  Sometimes you need shelter quickly.  Sometimes you want to see your vision turned into reality.
Generally when you are first starting out, working with what's readily available makes perfect sense.  Why would you put a lot of time and effort into building something when you don't know what you want?
But as you grow in knowledge, you start to develop insight and preferences.  You see what materials you like, you know how a certain layout would be not only beautiful but highly functional and you know the neighbourhood where it would fit in perfectly.
I think something similar applies with investment analysis.  
When you start out, you work with ratios and statistics that were built by someone else.  The cost is low and they do the job, hopefully.
But as you work at it and are exposed to new ideas you realize there's a whole world beyond PE ratios and dividend yields. You see how different variations of a familiar ratio would give you more insight.  You learn about calculations you cannot find for free.  You develop your own vision and something else:
You want confidence in what you are working with.  Is the information you base your investment decisions put together correctly?  If you build it yourself you’ll know it’s right.
You want to know how it's built.  There are variations in even the simplest ratio.  Sometimes the quick and dirty option is OK, but sometimes subtly matters.
You want information no one else has.  You realize that if you rely on the same statics as everyone else you are condemned to wander forever in the world of the efficient market hypothesis.
It’s fun and rewarding to build and work with your own creations.
Creativity begets creativity.  The more you work your own concepts, the more fuel you have.  It unleashes further ideas.
You know where you are in your investment life cycle.  If it's time to start turning your vision into reality, there's only one place to do it: INVRS.

Comments

Popular posts from this blog

A Value Opportunity in Bausch Health

Overview: Bausch Health Cos., Inc. engages in the development, manufacture, and market of a range of branded, generic and branded generic pharmaceuticals, medical devices and over-the-counter products. It operates through the following segments: The Bausch + Lomb/International, Branded Rx, and U.S. Diversified Products.

The Bausch + Lomb/International segment consists of the sale of pharmaceutical products, over-the-counter products, and medical devices products. The Branded Rx segment comprises of pharmaceutical products related to the Salix product portfolio; dermatological product portfolio; branded pharmaceutical products, branded generic pharmaceutical products; over-the-counter products; medical device products; Bausch + Lomb products sold in Canada; and the oncology, dentistry, and health products for women. The U.S. Diversified Products segment refers to the sales in the U.S. of pharmaceutical products, over-the-counter products, and medical device products in the areas of ne…

NextEra - Good Dividend in the Renewable Energy Sector

NextEra had good results relative to a group of peers in a factor-based analysis.NextEra has an appealing profitability and income profile.Its price momentum looks decent, with a caveat.Its relatively small size (a small mid-cap) coupled with its industry (renewable energy) further weight the odds that this company could be a strong performer in the future.
The Analysis Overview
I created a portfolio of stocks in the alternative energy sector, looking specifically for companies with a market cap over $1B but less than $4B.  This is a sweet spot that offers strong potential for growth but is also substantial enough not to be too speculative.

It's my believe that alternative energy is on the ascendance, where as fossil fuels will inevitably decline (NextEra isn't a pure play in this regard however, natural gas assets are part of its portfolio).  If you share this belief and you want exposure to this market, NextEra looks like a good bet.

This is a factor-based analysis on seven …

Twilio - Growth Isn't Reasonably Priced

Overview: Twilio, Inc. engages in the provision of communications software, cloud-based platform and services. Its developer-first platform approach consists of programmable communications cloud, super network, and business model for innovators. The company was founded by John Wolthuis, Jeffery G. Lawson, and Evan Cooke.

Founded: 2008
Number of Employees: 996
Headquarters: San Francisco US
CEO: Jeff Lawson

Analysis Methodology: We'll keep TWLO's business model in mind as we analyze it.  They're an enabling company - they provide tools to help other companies deliver on their objectives.  They help their customers focus on their core business by providing a robust platform where they can quickly, easily and for less money (presumably)  build the ancillary features they need to be successful, namely customer support.  They're a B2B business using a SaaS model.  They are "developer-centric".  I interpret this to mean they are focusing on the developer in their …