Mistake #6: When Buying a Stock, Overlooking the "Big Picture"
For a long-term investor one of the most important - but often overlooked - things to do is qualitative analysis, or "to look at the big picture". Fund manager and author Peter Lynch once stated that he found the best investments by looking at his children's toys and the trends they would take on. Brand name is also very valuable. Think about how almost everyone in the world knows Coke; the financial value of the name alone is therefore measured in the billions of dollars. Whether it's about Pokemon or Big Macs, no one can argue against real life.
So pouring over financial statements or attempting to identify buy and sell opportunities with complex technical analysis may work a great deal of the time, but if the world is changing against your company, sooner or later you will lose. After all, a typewriter company in the late 1980s could have outperformed any company in its industry, but once personal computers started to become commonplace, an investor in typewriters of that era would have done well to assess the bigger picture.
Lesson #6: Assessing a company from a qualitative standpoint is as important as looking at the sales and earnings. Qualitative analysis is a strategy that is one of the easiest and most effective for evaluating a potential investment.
Labels: Fundamental Analysis