Part 3 – Lesson 1
DISCLAIMER: Part 3 of this investment guide dives deeper into our style and approach with regards to stock picking. These lessons represent opinions of the Divergent View, and readers expressly acknowledge that these opinions should not be misconstrued as recommendations or financial advice. All readers should consult their own advisors with regards to their individual circumstances, risk tolerance, and financial objectives.
Parts 1 and 2 of this investment guide provided an overview of the “science” that an investor needs to understand prior to jumping into picking stocks. These parts highlighted core accounting, finance, and valuation concepts with some investment opinions interlaced throughout these lessons.
Whereas Parts 1 and 2 were the science, Part 3 is the art. As we dive into teaching the art of investing and stock picking, it is important for readers to understand that much of Part 3 is based on our beliefs and opinions. Many experienced investors may read sections of our guide and disagree with our approach or may approach investing a bit differently than we do, and that’s okay.
There are different ways to make money in the markets. Some investors trade for the short-term and some invest for the long-term. Some like value stocks while others like growth stocks. Some focus purely on fundamentals while others focus on the charts and technical analysis. Some investors will only go long stocks, while other investors employ short selling strategies.
Whatever style you choose, what is most important is to find a style that you are comfortable with and can consistently make money with.
What investment style do you favor?
Our approach favors investing in high quality US companies at attractive valuations over a long-term time horizon. While many of us spent our careers on Wall Street, the investment style that we gravitate towards is most similar in style to Warren Buffett.
This style has stood the test of time. If you find companies with attractive valuations that will grow over the long-term, the probability of success over the long-term is quite high. We don’t endorse taking bets on speculative investments or making short-term trades with the hope of making money quickly. We don’t endorse jumping into hot stocks to capitalize on the stock price momentum.
Swinging aggressively on every pitch to try to hit a home run increases your odds of striking out and having to exit the game. While you must take risk as an investor, we believe it is most prudent to hit solid singles and doubles consistently over-time. And all those singles and doubles is what allows you to score runs and ultimately win the series.
How should we use Part 3?
We encourage readers to read through all of Part 3 sequentially. In Parts 2 and 3, each lesson built on information presented in prior lessons, going from simple to more advanced topics. However, the information presented in the Part 3 lessons fit together more like a puzzle.
While each of the lessons do build on each other, these lessons will start to come together into a clearer picture once the puzzle is completed. Once you can step back and see how each of the pieces fit together, the art of stock picking will hopefully become less mysterious and more attainable to all investors.