Two Decisions for Share Investing Success

Taking a business perspective approach to share investing keeps it simple.  If you can answer these two questions, then you really have a process that takes all of the complication out of share investing.

Decision One
The first decision is to determine which businesses you want to own shares in. You want to know:

  • Which businesses have superior economics?
  • Which businesses are actually profitable?
  • Which businesses have a competitive advantage and why?

Once you know what you want to buy, you can then make the second decision.

Decision Two
The second decision is to determine what price to pay for the shares in a business you like.  You want to know what price the shares need to be trading at to afford a return on your investment that makes business sense.

A disciplined example of this approach can be seen in Warren Buffett’s investment in IBM.  In November 2011, Warren Buffett bought a 5% stake in IBM investing a touch over $10 billion.  Warren Buffet had read IBM’s annual report for 30 years prior to making an investment in the company.  It took him 30 years to firstly recognise the competitive advantages in the business, and secondly, to buy it at a price that he believed would provide a suitable return on his investment.

To do well investing in shares, taking a patient, disciplined and simple approach by making two decisions will put you in good stead.

This article is written by Dean Mico.

Our special company report for May is now available for our subscribers. This report is on a business that’s share price has risen over 400% this year and has plenty of unrealised potential.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

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