Fundamental Analysis
General points of analysis
Company Leadership Executive Pay No Stock Buybacks
- can be a red flag. Why are they doing this? to shore up their stock price? A buyback screams "short-term focus!" Long-Term Planning Is The Business Future Proof? Do I Understand What They Do?
Often after a company posts strong earnings, the stock price will rise sharply, followed by a sharp pullback. This is due to investor's taking profits off the table. This presents a buying opportunity, because nothing has changed in the fundamentals of the company.
Invest in companies that have economies of scale
- ex. Amazon has major benefits to more volume, making "good business" work in their favor, whereas companies like Uber or WeWork have poor economies of scale, and their expenses-revenue is far more linear
- the term "technology company" is thrown around a lot these days, but it might be smarter to define a "tech company" as one who inherently has has element of large leveragability and economies of scale— otherwise, how do you justify such massive multiples on their stock price?
Flywheel effect
The fly wheel effect is the idea of more people coming onto platform causing better content to be produced, which causes more people to come onto the platform, and so forth
- Netflix is a great example of a company to which this effect applies