Investment analysis: company analysis, industry analysis, economic analysis

I just realise I have posted twice on "Laws of Malaysia".
(Wonder what is wrong with the system)
So I edit one of the two posts to this post. :-)

You may see that I have posted more on economy recently.
It is just my personal preference to explore more on economy during this period of turbulence (or financial tsunami). During this period of time, many of the market/business/investment participants are in a "jittery" mode. Many stimulus/rescue packages, businesses asking for rescue, retrenchment, downsizing, debate of economic ideas/policies, volatile reactions, more fear, more greed…. the list goes on.

It is a good time to brush up on economy and economic theories.
However, for investment analysis, it is not only economic analysis.

For investment analysis,
company analysis, industry analysis, economic analysis are all important.
However, their relative importances are debatable.

If we proceed in sequence of company -> industry -> economy, it is called "bottom-up" approach.
If we proceed in sequence of economy ->industry -> company, it is called "top-down" approach.

My personal preference:
I place more importance on company analysis and industry analysis; but I didn’t ignore economic analysis. Need to know effects of economic situation/policies (exchange rate, interest rate change, credit situation, fiscal/monetary policy, state of economy etc..) to the company’s financial position, competitive position, etc. and effects on customers.

I didn’t strictly follow either "bottom-up" or "top-down" approach.
I proactively pick up bits and pieces of information on company, relevant industries (supplier, current industry, customer’s "industry") and relevant economic data;
add on to the "database";
decide based on the "database"..
More like when the three (company, industry, economy) clicks, then I buy or sell.

Company analysis is a must (but is quite a routine task, though may have pitfalls here and there);
I like industry analysis the most :-)


  1. I would like to comment about value investing. I have been a value investor for many many years. I have reached the conclusion that their is only one method of evaluating stocks that will consistently out perform the stock indexes by a enormous amount over time and mean a enormous amount over time. And that is buying stocks of decent quality that have very very low price to sales ratios. The only problem that I have encountered with this method is companies of decent quality that are trading at extraordinary low price to sales ratios' tend to become takover targets or get taken private often times so the companys stock never really gets the chance to reach the levels that it is capable of reaching. Another extraordinary thing about stocks that have low price to sales ratios is these stocks tend to have less risk than anyone could ever believe.

  2. Thanks for the insights.

    Actually all investment analysis has an assumption that "if data used to analyse is true". Sale figures can be manipulated through accounting gimmicks. There are cases of problem companies with high account receivables (sales that then become AR, but then failed to become "cash"). There are investors then use P/CF to analyze. But then even CF figure can be manipulated. Sigh.

    Yes, being taken private at cheap before reaching levels capable of reaching is a problem.

    One method to counter this is through shareholder activism. Say no to "cheap takeover". I have some posts on shareholder activism, under label of "shareholder activism".

    Yet, still it's difficult, as many investors after prolonged period of low P/sales will tend to accept the offer.


Related Posts with Thumbnails


The opinion post on this blog is personal and is not an inducement to buy or sell any investment products. The author of this blog will NOT be held responsible for any losses incurred due to the reliance on any content of this blog for investment decisions.