This time it’s different. It is a common catchcry you hear by ‘expert’ commentators – usually at the height of a market bubble or at the bottom of a market correction. What 25 years of helping DIY investors through our market-leading Stock Doctor investment software has taught us is that it’s usually not that different.
During this time, we’ve experienced market meltdowns, global crises, wars and a global pandemic – but when it comes to investing, our experience tells us that the more things change, the more they stay the same.
In fact, despite the dramatic technology, economic and market changes we’ve seen over the past quarter of a century, understanding the solid fundamentals of a company remains a key prerequisite to making effective investment decisions.
We would argue that quantitative data analysis is as important, if not more important than ever before, as without understanding such fundamentals, investors are merely speculating.
That doesn’t mean we don’t need to adapt our investing approach. Each of the market disruptions or corrections that we have experienced over the past 25 years has provided us with an opportunity to fine-tune our models to ensure we provide investors with the best armoury to combat and prosper through all market conditions.
But a focus on the numbers and a commitment to our ‘Golden Rules’ investment framework continues to prove itself for all types of investors.
Meet Stock Doctor member John Palmer
South Australian-based member John Palmer subscribed to Stock Doctor in the early days but came back more permanently after retiring from maths teaching five years ago.
He is a self-described long term growth investor and someone who has recognised the importance of understanding the financial fundamentals of a business as a prerequisite for investing.
He and his wife are self-funded retirees, so John manages their SMSF with the goal to generate capital growth and dividend income to support their lifestyle… without taking on too much risk.
John strongly believes each individual investor needs to find an investment strategy that works for them, but having tried technical analysis, and dipped his toe into value management, what John found allowed him to “sleep at night” was analysing and understanding the underlying fundamentals of a business to determine his investment selection.
“Lincoln’s first Golden Rule is the most important indicator of all. If a company does not have strong financial health, then why invest in it,” John says. “Golden Rule number two – past financial performance – is also a non-negotiable for me.”
John has refined his investment approach over time – “a culmination of 20 years of learning from mistakes.”
He now focuses on selecting investments that adhere to several clearly defined financial metrics and uses Stock Doctor to analyse company results and overlay key metrics.
“My research and experience have shown me that a good proportion of stocks with strong financial metrics will continue to deliver those metrics and that in turn will ensure share price growth,” John said. “Conversely, stocks with poor financials generally struggle to deliver decent returns over the long term.”
“I’m looking for companies with a strong track record of earnings growth and management of debt, or even better with no debt, as fundamentals that are strong indicators of future share price performance.”
It’s about being wrong less often
John’s lesson from his investment journey is that you will never always be right.
“There is no way of predicting what the future holds with any degree of certainty, and in fact, if you can get about two-thirds of your investment choices right, then you are doing well.”
“There will be times when your portfolio balance will suffer. That’s why every investor needs to have a plan for how to manage that inevitability.”
“You can’t change your approach because of a period of three or six months where the market has moved against you. If you are in companies with a good story to tell and great financials to back it up, eventually, over the long term, the market will work it out.”
Fitting words for the market environment in 2022
Stock Doctor’s 25th year has started with a rise in share market volatility with the war in Ukraine, rising inflation and predicted increasing interest rates, all weighing on market sentiment.
No one can predict the future, but we know that markets go through cycles. It is important to remember that understanding the underlying financials of a business remains key whether markets are rising or falling.
It doesn’t have to be complex or time-consuming, in fact, we make it easy for investors by picking Star Growth Stocks and Star Income Stocks, highlighting the companies that meet our ‘Golden Rules’ as a starting point for investors looking for quality investment opportunities that will provide long-term returns.
At Lincoln Indicators, we provide Stock Doctor for self directed investors and Self Managed Super Fund (SMSF) Trustees to access our exclusive quantitative research platform with essential portfolio manager and tracker tools – helping investors make confident decisions when selecting and constructing your stock market portfolio.
We also provide Managed Funds. Each fund has been developed by investing in the numbers – applying our quantitative methodology to invest in a portfolio of high-quality, financially healthy stocks. Whether you need a high-yield income stream, long-term capital growth or diversity outside Australia, we may have a managed fund to deliver on that goal.
To discuss the future of your investments in detail, book in a free consultation with a Lincoln representative.
To discuss the future of your investments in detail, book in a free consultation with a Lincoln financial expert.