Thread by @heymaxkoh

1/16 Thread:

Why I never use other people's numbers from their investment research?

I always do my OWN work.

Here's why you should too:

2/ I have a rule.

Even if the financial model or valuation done by another analyst makes perfect sense to me, I will always take the long way and still do it myself.

3/ I will go to the annual reports and 10Q to retrieve those numbers on my own.

And then see if I get the same conclusion.

I recommend you do the same.

4/ Because it makes you a better researcher.

Your returns as an investor are a lagging indicator.

It's an output that is based on inputs - which in this case, is your ability to analyze a company well.

5/ So if you have the habit of always outsourcing your analysis to someone else, you will never develop confidence in your OWN research process.

And that is key.

A good investor is all about being a good researcher.

6/ While yes, you save time by relying on somebody else's numbers...

But you lose out in terms of research ability and analytical skill.

7/ When the day comes you need to do your own research...

Or the company is a small or new company that doesn't yet have numbers available, you will be stuck.

8/ So even if I see a report by a fund manager who I respect, I will still take the time to fill the numbers on my own.

Here's another reason...

9/ It forces you to slow down

There is something different about putting in numbers on your own.

That process of physically doing something makes you more immersed in the company's fundamentals.

10/ As humans, we always want to speed things up and do things faster.

Get quick results.

But when it comes to investment research, I find it helps to add some friction.

Slowing down forces you to take a double look at some figures.

11/ As you are extracting them from the 10K and 10Q on your own, you naturally compare them to last year's numbers. Or last quarter.

You are forced to think about the difference.

Is the growth on track?

Or is it too slow?

12/ You then dig deeper in your research to find answers to these questions.

This process is valuable to helping you build conviction around the positions you own.

13/ This conviction will help you stay rational during a correction.

This is quite a common story:

Someone at a stock investing conference makes a strong case on a company. It seems compelling.

So people buy it.

Then the stock drops 50% on bad news and they get nervous.

14/ What many people fail to ask is:

"How much time did this smart guy who made the pitch spend thinking about this issue pressuring the stock?"

The answer is you "don't know".

Because you didn't do your own work.

15/ You borrowed someone else's conviction.

And now you are paying the price.

When you’re lost in the fog, you tend to make bad decisions because you’re scared.

END/ Investing is more of an emotional than intellectual exercise.

It's tough to stay rational during bad times if you’re making decisions based on someone else’s information.

So there is an advantage to making decisions based on facts that you gathered yourself.

That's it!

If you found this helpful, follow me here at @heymaxkoh

I tweet about how I attained financial freedom before age 30...

By investing in great businesses.