10 Tips to Becoming a World-Class Investment Analyst: Throwback Thursday
This is another post in our weekly ongoing Throwback Thursdays Series, where we share with you posts from the past blogs to bring you as much value as possible. Today we share 10 tips to becoming a world-class investment analyst.
I try to re-post this at the beginning of each year to give you some great tips and mindsets to learn going into the new year..
The things I talk about below can be used to become great at any skill, not just value investing.
Get FREE access to 17 of our best training videos from the past by clicking here.
Other than some minor edits and updates, this is the same exact post as originally published in 2016.
Jason
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This post is written in conjunction with Quandl, as part of a series on how to become a great investment analyst.
Quandl provides access to data and information useful to us as investment analysts. So if you’re looking for specific data to make your analysis pop make sure to check out their site linked above.
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Are you sure you want to be great?
No one admits they’re fine being average. But our actions show otherwise.
Most of us would rather watch TV or random YouTube cat videos instead of working on improving and learning the skills necessary to improve and reach our goals.
The ones who do work towards greatness are often labeled antisocial hermits for not hanging out with friends and partying more. Especially when you are young.
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This social stigma keeps many of us from doing what we really want to do…
If you want to achieve greatness you must do things different than everyone.
If you want to improve fast you must endure short-term pain. And sometimes ridicule from peers when you’re not doing what they expect you do to.
If you’re willing to do the work necessary to become a world-class investment analyst below are the top ten things you have to do every day.
Top 10 Tips to Becoming a World-Class Investment Analyst
1. You need to be patient
Are you fine searching through thousands of companies only to invest in a few of them? Are you fine going months or years without buying a new investment?
If you answer no to either you won’t be a great analyst.
I invest in less than 1 out of every 500 companies I research. You need to have extreme patience and enjoy the hunt of buried treasure as much as actually finding it.
2. You need to be an autodidact
Do you rely only on your degrees and certifications to get you by? Do you seek out new and sometimes contradictory information to continue to learn and improve processes?
To be a world class investment analyst you have to love learning, reading, and gaining knowledge on your own.
Degrees and certifications have nothing to do with how great of an investment analyst you are or can become.
If you’re not willing to read and continue learning you won’t become a world class investment analyst. Because people like me who constantly read, learn, and work to improve will always be ahead of you.
3. You must have strict and disciplined processes
If you can’t make unemotional decisions based on how your analysis plays out you won’t be great.
You can’t rely on preconceived notions, hearsay, emotion, or what Mr. Market’s doing. Let your analysis take you where it does.
If you spend 100+ hours researching a company only to find at the end it’s not one you want to invest in don’t invest in it.
Just because you spend a lot of time evaluating a company doesn’t mean you need to invest in it.
If you have strict processes and have the discipline to stick to these processes you’ll invest in a fraction of the companies you research as mentioned above.
Don’t be average be great. Again, this requires you do things different than everyone else. Be selective in your investments to produce greater returns.
4. You need to practice everything you learn as you learn it
When I started investing I would read everything but not practice anything I learned. This led to years of wasted time as I had to go back and relearn things as I came across them and needed to know what they meant.
Don’t do this.
And when I say practice I don’t mean the normal practice most people do. I mean deliberate practice.
5. You need the fundamentals down pat
If you can’t explain what free cash flow, operating margin, and return on invested capital mean in terms a 6th grader can understand you don’t understand it well enough yourself.
You need to understand the basics better than other analysts to have an advantage over them.
6. You have to be selfish with your time
If you’re friends are doing something you don’t want to do don’t do it.
This sounds easy but it’s not. Remember the social stigma I talked about above?
If you want to improve fast be selfish with your time and find any spaces of time you have to learn.
As an example if your significant other’s taking forever getting ready to go out, instead of getting mad and anxious about them wasting your time read something. Even if it’s only for five minutes.
The more you learn the faster you’ll improve. Knowledge like money compounds over time.
Note on above quote: Most people – including me – can’t reach the 500 pages every day goal because of kids, significant others, family, work, relaxing so you don’t burn out, and life. But it’s a goal to reach towards.
Read as much as you can every day.
7. You don’t get complacent
There’s always more to learn. Always an investment or thought process you can improve. There are always more companies to look through. Etc.
“The thing that amazes me about him {Nick Saban} is that he doesn’t let up,” says retired Florida State coach Bobby Bowden. “People start winning, they slack off. But he just keeps jumping on ‘complacency, complacency, complacency.’ Most coaches don’t think like that.”
To learn more about what it takes to be great read my post: Greatness According to Nick Saban.
8. You need confidence in your abilities
“You need to balance arrogance and humility…when you buy anything, it’s an arrogant act. You are saying the markets are gyrating and somebody wants to sell this to me and I know more than everybody else so I am going to stand here and buy it. I am going to pay an 1/8th more than the next guy wants to pay and buy it. That’s arrogant. And you need the humility to say ‘but I might be wrong.’ And you have to do that on everything.” Seth Klarman
This doesn’t mean being overconfident.
You need to be humble enough to spot and fix any mistakes you make in your analysis that may only come out after you invest in or recommend something.
But if you’re not confident in yourself and judgments you make why should anyone else be?
9. You can’t be afraid of mistakes
No matter how great of an investment analyst you are you’re still going to make mistakes. Investing isn’t something anyone can perfect. Even Buffett, Munger, Klarman, and the other greats in our business make mistakes.
As investment analysts were doing great things if we’re right four to six times out of 10. No one is right 10 out of 10 times in this business. Leave your perfectionism at the door.
You need to be comfortable making mistakes. And be humble enough to learn from them so you don’t repeat them going forward… Hopefully.
If you’re stubborn like I am this may be a hard learned long-term lesson you need to work correcting every day.
10. You have to be obsessive
No one starts life as a great investor or thinker. You need to train yourself to become great. And the faster you learn the faster you’ll become great.
If you’re obsessive about learning the craft of becoming a world class investment analyst nothing can stop you.
High IQ isn’t necessary in this field. It will be a hindrance if high IQ comes with overconfidence and not being humble. So the only thing stopping you from becoming a great analyst is the amount of time you’re willing to put in.
Note the reading of 500 pages quote from Buffett above.
Are you obsessive enough about investing and analyzing businesses to work towards that goal?
Do you love learning, reading, and constant improvement enough in this field to continue to work even on days you don’t want to?
Bonus. Write your analysis down and let others critique your work
Most of us hate being critiqued. When we put dozen, hundreds, or thousands of hours into something over days, weeks, or years it’s natural that we don’t want people to point out the flaws in what we’re doing.
Fight this urge…
If you want to become great write your investment analysis down and have others critique it. A great way to do this is to start a blog.
When I started my blog Value Investing Journey and began getting feedback, my improvement as an analyst jumped into hyper speed.
I went from this “analysis”, when I started the blog less than four years ago, to being told a version of the following on a regular basis:
“If I were to go to anyone else in the entire company to get a second opinion valuing and analyzing an investment, I would go to you first.”
The above quote is what a former colleague told me upon leaving my job.
The company had around 50 employees. And every other analyst had an MBA. Decades of experience investing. And ran or helped run billions of dollars at various hedge funds and firms before joining the investment newsletter we worked for.
I get told a version of the above on a regular basis but I’m not telling you this to brag.
I’m telling you this because if I can achieve this without any formal education and severe health issues while beginning my investment journey imagine what you can achieve with your formal training, degrees, mentors, and certifications.
If you don’t already have a or want to start a blog post articles on places like Seeking Alpha and Guru Focus to get feedback.
If you take this route beware of haters making personal attacks though. Ignore these people and pay attention to the constructive feedback.
Conclusion
If you paid attention on the top 10 tips to becoming a world-class investment analyst, you’ll notice many of the tips go together and a lot of it revolves around how you choose to spend your time on.
The choice is now yours. Are you willing to put in the time to become great? Or are you fine being average and producing average returns and recommendations?
Time is the only thing keeping you from becoming a world class investment analyst.
So what are you going to do next?
P.S. To take another step towards your goals of becoming a great value investor you can get my full preliminary analysis checklist to evaluate companies like I do – PLUS 4 other free gifts that will help you become a great value investor faster click here.
P.P.S. Or you can go here to get our brand new free guide titled – 7 Tips to Picking Great Stocks and 3 Times You Must Sell for free. In this guide, you’ll learn these things and more of my processes you can learn to begin evaluating companies better and faster, NOW.