Five sleeps to Christmas! Or perhaps more accurately, seven sleeps to the return of the Premier League. Mad times.
As last-minute Christmas shopping ramps up, it always makes me think of the number of investing debates we’ve witnessed, where the most common stock picks are those in consumer facing industries, and the rationales are along the lines of companies making good products and forecasting strong sales. The reality however is so much more complex.
Just because a company makes innovative products, that doesn’t mean its share price will rise. Just because a company has strong sales, that doesn’t mean its share price will rise.
What if those innovative products have already been anticipated and priced into the current share price? What if those strong sales are based on unsustainably low prices? What if the company is about to refinance its debt obligations on terms that the markets may feel are unfavourable?
There are hundreds of micro factors that impact the price of a stock, and in so many cases, those factors will already be priced in. And that’s without considering the macro conditions which play the biggest role in shaping the overall direction of the markets.
The key is to research, and maintain a holistic view of the company, sector, region, and the state of the world. Look at the supply chain, the competitors, and study the financials. And even then, try to diversify and minimise exposure to individual bad calls.
And if you ensure your outlook is long term, you’ll be able to enjoy the festive period; the food, the drinks; and all the football on offer, while taking a well-earned break from constantly checking your investing app.
Merry Christmas and Happy Holidays from Upside!