Here are 4 more pitfalls to avoid?
Management uses shareholders money in an untruthful manner.
In some rare cases, the management will try to enrich themselves by using your funds, instead of using it to grow the company.
Read a page or two on related party transactions towards the end of the annual report to see how they are spending your money.
Attend the AGM of the company to get to know the management team personally. This will help you understand the nature and intentions of the management team.
A major shift in world events, economies, technology or disruptive competition.
Great management team will turn a change into an advantage.
Poor management will excuse their poor performance by blaming it on the “circumstances beyond their control”.
Discuss the effect of the changes in world events, economies and disruptive competition with the people outside the business.
This will give you a fresh perspective on what the future might hold and if your business will be able to adapt to it.
You mistakenly invest in poor business or one with poor management
There are two things that matter above all in investing:
- A business with an unquestionably strong business model
- A business with an unquestionably good stewards of investor funds
If you feel like you made a mistake in analyzing the business model or the management team, it might be time to consider selling.
You buy a business that has a very high P/E ratio
You can lose a lot by paying high prices for a stock.
Buying a business at a reasonable PE makes sure that you get the best returns year after year.
The first two mistakes are management mistakes and the last two mistakes are personal mistakes.
Spend a week per year to analyze all the companies in your portfolio.
This will help you weed out potential Capital Killers before they eat up your capital.
