investment strategy

investment strategy

investment strategy

"Be fearful when others are greedy and be greedy when others are fearful."
-Warren Buffet-
Here I explain the 5 steps I follow when choosing a stock. As a convinced value investor, I only consider fundamental aspects and topics that influence the operative business. An example of what this can look like in concrete terms can be found below here.

Value investing approach

I am a staunch value investor. By that I mean that I assume that the share price on the capital market does not always correspond to the actual value of the company. So I assume that there are cases in which the efficiency mark hypothesis is not correct. The reason for this is simple psychology: the risk of being wrong alone is perceived as greater than the chance of being right alone. That's why the majority of investors trade with the crowd -- even though there's actually plenty of research out there. For me as an investor who tries to act not on emotions but on fundamentals (development of company profits and cash flows), this always creates opportunities.

My approach

Step 1: Top-Down Analysis
In order for me to even look at a company for an investment, it has to be in what I consider to be an exciting industry with good growth prospects for the next 3-5 years, preferably 10+ years. Examples would be topics such as the expansion of rail traffic, the energy transition or the digitization of administration in Germany. This perspective is important to me because I want to invest for the long term and sometimes it just takes a little longer for the market to understand that it's a good company.

Step 2: Bottom-Up Analysis
Then I look at the latest company announcements, quarterly and annual reports and company presentations. But I also read up on the respective stock exchange forums. From this I then create a model to determine the current valuation of the company. Here I use a wide variety of methods: net asset value, sum-of-the-parts analysis, DCF or PEG ratio.

Step 3: Clarify open questions
When analyzing the business model and the orientation of the company, I often have a few questions. In order to answer these, but also to get a better feeling for the company, I often go to the Investor Relations department. Since I invest primarily in small and microcaps (= companies with a low market capitalization), I often get in touch with the CEO or CFO. In the conversation, I then state my concerns in order to get an assessment of this from those who are even more deeply involved in the matter than I am.

Step 4: Derive fair value and upside potential
From the information I received in the first three steps, I model the future earnings development. I try special factors thatto overplay the true earning power, as well as to calculate out positive one-off effects. By comparing the fair value from my point of view to the current stock market price, I can then see whether an investment is promising. My goal is to only invest in companies that I believe will increase in value by 50% in the next 3 years and 100% in 5 years.

Step 5: Monitoring
After I have decided on an investment, I regularly review my investment case. By that I don't mean that I look at the course - but how the company develops operationally. So I then refine my model - both in one direction (if the forecasts were too optimistic) and in the other (if I was too cautious). However, because I invested a lot of time in the first four steps, monitoring is "relatively" easy. If perspectives change for the better without this being reflected in the course, I increase the deposit share. If the prospects deteriorate, it is reduced or sold completely. The same applies if the market value approaches or even exceeds the fair value.
"Be fearful when others are greedy and be greedy when others are fearful."
-Warren Buffet-
Here I explain the 5 steps I follow when choosing a stock. As a convinced value investor, I only consider fundamental aspects and topics that influence the operative business. An example of what this can look like in concrete terms can be found below here.

Value investing approach

I am a staunch value investor. By that I mean that I assume that the share price on the capital market does not always correspond to the actual value of the company. So I assume that there are cases in which the efficiency mark hypothesis is not correct. The reason for this is simple psychology: the risk of being wrong alone is perceived as greater than the chance of being right alone. That's why the majority of investors trade with the crowd -- even though there's actually plenty of research out there. For me as an investor who tries to act not on emotions but on fundamentals (development of company profits and cash flows), this always creates opportunities.

My approach

Step 1: Top-Down Analysis
In order for me to even look at a company for an investment, it has to be in what I consider to be an exciting industry with good growth prospects for the next 3-5 years, preferably 10+ years. Examples would be topics such as the expansion of rail traffic, the energy transition or the digitization of administration in Germany. This perspective is important to me because I want to invest for the long term and sometimes it just takes a little longer for the market to understand that it's a good company.

Step 2: Bottom-Up Analysis
Then I look at the latest company announcements, quarterly and annual reports and company presentations. But I also read up on the respective stock exchange forums. From this I then create a model to determine the current valuation of the company. Here I use a wide variety of methods: net asset value, sum-of-the-parts analysis, DCF or PEG ratio.

Step 3: Clarify open questions
When analyzing the business model and the orientation of the company, I often have a few questions. In order to answer these, but also to get a better feeling for the company, I often go to the Investor Relations department. Since I invest primarily in small and microcaps (= companies with a low market capitalization), I often get in touch with the CEO or CFO. In the conversation, I then state my concerns in order to get an assessment of this from those who are even more deeply involved in the matter than I am.

Step 4: Derive fair value and upside potential
From the information I received in the first three steps, I model the future earnings development. I try special factors thatto overplay the true earning power, as well as to calculate out positive one-off effects. By comparing the fair value from my point of view to the current stock market price, I can then see whether an investment is promising. My goal is to only invest in companies that I believe will increase in value by 50% in the next 3 years and 100% in 5 years.

Step 5: Monitoring
After I have decided on an investment, I regularly review my investment case. By that I don't mean that I look at the course - but how the company develops operationally. So I then refine my model - both in one direction (if the forecasts were too optimistic) and in the other (if I was too cautious). However, because I invested a lot of time in the first four steps, monitoring is "relatively" easy. If perspectives change for the better without this being reflected in the course, I increase the deposit share. If the prospects deteriorate, it is reduced or sold completely. The same applies if the market value approaches or even exceeds the fair value.
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