Member-only story
3 Quick Points to Help Narrow down Your Investment Focus
Invest in companies that are high conviction to you
When it comes to investing for the long-term, there are so many different directions that you can go. That is why it is important to narrow down your focus to only invest in companies that you have high conviction in. What does it mean to have high conviction? It means that from your research and due diligence, you have concluded that the companies you have selected to invest in will provide you exceptional returns over the next 5,10, 15, etc., years. When it comes to narrowing down your investment focus to the high conviction companies you want to invest in, the following three points are characteristics of companies you should be mindful of:
· Control Their Destiny
· Profitable
· Intelligent Management
Control Their Destiny
When a company is in control of their destiny, external events that happen outside of the company will not bring that company to an end, or close to an end, with that end being bankruptcy. For example, an event such as the coronavirus pandemic caused retail companies such as J.C. Penny, Neiman Marcus, and GNC to go bankrupt.
A company being in control of their destiny also means that a company primarily performs operations and tasks that will benefit its future growth prospects. That involves innovation, which is the practical implementation of ideas to improve goods and services or introduce new goods and services. Innovation is important, and if a company is not innovating now, then that company will fall behind, losing control of their destiny. Examples of companies in control of their destiny are Alphabet, Apple, Tesla, and Disney.
Profitable
A company should be profitable. Yes, I am aware that not all high-growth companies are not immediately profitable. Still, it should get to a point where a company can post multiple consecutive quarters of profitability. Two of the key metrics to determine a company’s profitability are earnings-per-share (EPS) and return on equity (ROE).
EPS is a company’s net profit divided by the number of common shares it has outstanding…
