|Know friends who can analyse financial statements very well but they haven't necessarily proved to be very successful investors?
Maybe it's their luck or timing but there's a lot more to successful investing than number crunching.
This point was made by a US fund manager -- Paul Lountzis -- who spoke about "qualitative investing" in a Youtube video recently.
"Some of the advantages that you have as micro cap investors include being able to communicate with smaller companies and talk with them. I want to point out regarding the research process -- the qualitative and the quantitative, they're both really really important.
"The problem with just looking at the numbers is they tell you about the past and you're investing in the future. And today, more than ever, things are changing and the rapidity and magnitude of change is unbelievable. In a very, very rapidly changing world, I think the qualitative aspects are really, really important."
"I know the numbers I know the industry data, so do a lot of people. What you're trying to do is look around corners and get an understanding of what's gonna happen going forward and it's just so important to emphasize that's more important today than ever.
"It's happening in a lot of other industries and so some of the things we look for on the qualitative side are the rapidity and magnitude of change, how well are they going to adapt, are they adaptable as a management team, what leadership do they have, are they creative, are they flexible, do they look at the world in a different way, how courageous are they.
"What you'll find when you study people like Zuckerberg, the Google guys and many many others -- they really look at the world differently and then they have the courage to follow their different view of the world. Those are two very rare and unique qualities but those are important and those aren't visible in the numbers, they're just not visible.
"Other things we look for are the size of the market, the nature of the competition, the industry structure. Another important thing we look at and we do this in all the public companies we look at we do all the financial analysis. I read 20 years worth of annuals, I get all the industry data, I know the industry, try to understand the industry dynamics so I know all that beforehand but then I start homing in on the qualitative -- why are they the way they are, why are they better, what's unique, and what's different, what's special about them.
"Ultimately that's really how you're going to make a lot of money, because if all the things are visible, you're not going to do well. Everyone else has seen that. One of the biggest things we look for is, what's the magnitude of the problem they're solving? It's critical even if they're public and have been around for twenty years I think to myself, what's the magnitude of the problem that this company is solving?"
The full 40-min speech -->