What are the next big thing and the upcoming trend?
In recent years, this has been the favourite question asked by retail investors or pitched by analysts.
Truth is, how viable and useful is it to aid retail investors in making their next investment decision?
It is the new year. And there are definitely plenty of such investment talks and seminar. But let’s sort it out. Is it useful?
First, I do not doubt there is quite a bit of benefit. Knowing where the world is heading to, be it science, technology, economy or geopolitics, is important and fascinating. So yes it is useful. To a certain extent.
Knowing what is upcoming should give us an idea to look for our next investment opportunity. It could be perilous when hot stock picks are given out without addressing the risk factor. At the end of the day, each and every one of us has a different set of risk appetite.
And to be frank, you need to think twice if a company needs an upcoming trend to show earnings. A great company does not need to rely on special catalysts for its value to be unlocked. There are investing methodologies that wait for a certain scenario for the value of a company to be unlocked. But that is deep value investing, which requires a different set of skills compared to growth or dividend investing (not to mention extra patience too!).
If a company requires a few man-made catalysts to jack up their potentials, we should all think twice. Some very good examples are listed construction companies, which have their fate tied to the governments’ infrastructure budget and planning. Or plantation companies, which have their earnings heavily impacted by the ever-changing crude palm oil prices.
In the event of a sudden change in plans and directions, there could be some irrational price movements against us.
Personally, I prefer investing in companies that are able to produce profits day in day out. They might trade at a higher valuation, but I wouldn’t mind paying a bit extra to sleep soundly at night.
In a nutshell, I would separate the trend and outlook from my decision making when it comes to stock picking. Sometimes though, the bearish undertone of a certain sector (E.g. Banking and Finance) would make me keep an eye on them more. In my opinion, focusing on a company’s growth and the value it can offer rather than betting on a trend is the true gist of value investing.
What are your views? Do you agree? Let me know in the comment section below.