STREET DOGS

The battleground is no longer having access to information. That was yesteryear’s investing. Today’s investing is about asking the right question. You’re no longer going to be a good database. You’re going to be a good search engine. The answers are there to be found. It’s the right questions to ask. That’s how we differentiate ourselves as well. We’re not looking for information. We’re looking for insights.“– Rupal Bhansal

Asking the right questions is a vital part of the investment process and while coming up with the right industry- or company-specific questions may be difficult, a few fundamental questions should lie at the heart of every valuation process:

What is the company worth? “It is so easy to lose sight of this as a northern star,” says Thomas Macpherson at Guru Focus, “but it’s probably the single most important question you can ask as you get started. No matter how you come up with it – price:book, price:earnings, dividend discount or discounted free cash flow – you have to estimate a value for your investment.”

How does the company make money? It might seem like a relatively easy question, but it’s surprisingly easy to come up with the wrong answer.

What are the underlying assumptions? If you’re buying to hold, for example, it’s easy to see what Coca-Cola might be doing 20 years from now, but what about, say, Lexmark? Or do you just assume past successes will somehow carry on?

What are the risks associated with this investment? This means not only understanding the company- and industry-specific risks but also the investment style and market risks.

How easy will it be to get out of this investment? At what cost?

Asking questions that give you out-of-the-ordinary insights is more art than science. The key lies in knowing what you’re looking for.