G'day Foolish readers,
What do you know about your shares?
I bet you know what the current price is, roughly. You'll definitely be aware of how the price has moved since you became a shareholder.
But what do you really know about your business? (And, yes, if you own shares it is your business!)
Do you know how the business makes money? It's not good enough to know what industry the business is in — I'm talking about whether you have an understanding of the business model and strategy. What's the competitive landscape and what potential is there for growth?
Maybe the business doesn't even make any money — most ASX listed companies don't. If so, what reasons are there to expect that will soon change, and is there enough cash in the bank to sustain operations until the money starts to roll in?
Even if it does make money, does that represent a decent return on the funds invested by the business? What are margins like and are earnings reliable? What factors could undermine profits, and how likely are they to occur?
What does the business do with the money it makes? Are operations costly to sustain, or can the business easily distribute a good proportion back to investors? Does the business have attractive options for reinvestment on the profit it does keep?
Do cash flows bear any resemblance to accounting profit? No amount of 'paper profits' and clever accounting can sustain a business — or indeed dividends — in the long run.
What are management like? Your business is probably paying them a healthy salary — and probably some juicy benefits too — but are they worth the cost? What's their track record like? Do they have any skin in the game?
Does the business require large sums of debt to operate? What is the structure and cost of the debt? When does it mature and can it easily be refinanced or repaid?
I could go on. But the point is this:
The sharemarket is great at transferring wealth; from the ignorant and impatient to the informed and patient. And if you can't describe some of the key aspects of a business, you will find yourself on the losing side of that equation.
Of course, it's understandable if the work involved seems arduous — not everyone has that kind of interest in business, let alone the time to get into the detail. But that's why it pays to outsource the work.
Someone with a proven track record and time-honoured approach. Someone whose investing style is aligned with your own investment goals and philosophy. Whose fees won't cripple your returns, and whose incentives arealigned with yours. Someone that seeks to educate, as well as inform, taking the time to explain the investment proposition in a no-nonsense, jargon free manner. Someone that operates above reproach, in a completely transparent manner and with absolutely no conflicts of interest.
Someone like Motley Fool Dividend Investor.
Ok, that's a pretty shameless plug, but I challenge you to list a service that does all that for such a low price. And one that offers a full money-back guarantee if you don't find the offering suitable within the first 30 days.
A service that prominently lists every recommendation ever made — including those that didn't work out — and then compares them with the market average. One where the advisor's own shareholdings are listed, and whose personal investments can never be at odds with any current recommendations. A service whose own profitability is entirely dependant on member satisfaction and retention.
And one that has comprehensively beating the market since inception.
And if that's not for you, that's ok too. But unless you are prepared to do the work yourself, unless you have the discipline to stick to your strategy through the ups and downs of the market, and unless you are willing to partner with an experienced and proven advisor, then you have no business investing directly in shares.
