All that glitters is not gold. As it is for precious stones, so it can be for stocks too.
There is a difference between a great company and a great stock. The key is in identifying attractive companies, followed up by a thorough analysis of its fundamentals and valuation to determine whether it is an appealing investment opportunity. Research is the name of the game.
The ever-quotable Peter Lynch once said: "Peter Lynch doesn't advise you to buy stock in your favorite store just because you like shopping in the store, nor should you buy stock in a manufacturer because it makes your favorite product or a restaurant because you like the food. Liking a store, a product, or a restaurant is a good reason to get interested in a company and put it on your research list, but it's not enough of a reason to own the stock."
So the glittering stocks currently sitting at the cool kid's table, like Apple, Facebook or Netflix (part of the FAANG Gang), may look attractive, but their increasing popularity has driven their prices higher, and could mean that they lack margins of safety.
We go back to the Efficient Market Hypothesis (EMH) - if you’re a believer, you may accept that high valuations indicate greater growth potential. However, high valuations may limit future gains because they represent a best-case future that may not be seen.
In the market at the moment, it’s all growth over value. Just knowing a company’s intrinsic value is only half the story. When doing fundamental research you need to go further - understand the company's sector positioning (relative value), its MOAT (if any) and the current drivers of valuation.
In layman's terms, when the glittering stops, will these company’s still be gold? As we have written in the past, investing is a long term game, for long term gain, and value investing - a Lynch classic - goes against the EMH.
Here’s the kicker - as an investor you have a choice. Sure, you can sit at the cool kid's table, even pad your portfolio out with a few of these names, but there are thousands of stocks out there. Stocks with good fundamentals, with growth potential and value that aren’t propelled by Reddit threads or media frenzies. Companies that don’t have divisive CEO’s proclaiming whims on social media. Freedom of choice is a deliciously adult thing, and that is what we give you when you team with Upside.
Whatever your strategy, whatever your investment goal, whether a cool kid or a late bloomer, glittering undercurrents or a heart of gold, Upside has the information and insights you need to build stellar investment ideas and develop your bespoke and measured investment portfolio.
There's a science to mining and a science to being right.