“The investor reading a book”
Image extraction: DALL・E2
When a person who has been emphasizing technicals such as chart patterns and engaging in day trading or short-term trading starts long-term stock investment, they tend to apply the same technicals they used in the short term to the long term as well.
I was like that, and even now, I basically look at charts with that perspective.
However, recently, I’ve started to feel that this alone is not enough.
Especially in my case, having mainly engaged in day trading in FX, I have developed a habit of thinking of trading as a zero-sum game (where the sum of gains and losses among participants equals zero). In other words, it’s a competition.
I have come to realize that non-zero-sum stock investment, where you support companies that create economic value by investing money, is different from day trading in FX. It took me three years since I started touching stocks to finally understand this.
If you’re trading Japanese individual stocks, read the quarterly reports
It might sound obvious to stock traders, but if you want to invest in individual Japanese stocks, you should read the quarterly reports and develop a habit of analyzing companies to some extent.
The idea is to search for “tenbaggers” (stocks that surge tenfold).
This might be why ETF index investing is popular because it’s less hassle, but whether to delve into stock investing depends on one’s own goals, and in my case, it’s necessary.
So, I looked into how to read the quarterly reports.
How to read the quarterly reports
The quarterly reports contain a vast amount of information, and it seems they can be read not only in print but also online: Shikiho Online (https://shikiho.toyokeizai.net/ *In Japanese only)
A clear explanation was provided by Emin Yurumaz on YouTube (Pivot: https://youtu.be/RT9yYZwrUtc).
In summary:
・Is there an increase in revenue and profits?
・Is the equity ratio above 70%? (In the BS section)
・Is the operating cash flow positive?
・What is the extent of debt? (Interest-bearing debt, cash equivalents)
*Not much of a concern for real estate companies
・What is the dividend yield? (3% or more is reasonable)
*Higher than the inflation rate
**Not necessary for growth companies
・Chart (worth buying?)
・Valuation (P/E ratio) should be looked at last
*To prevent biases
Reading about ten pages before and after the company of interest can give you an idea of the industry’s condition.
Although not from this video, a low P/E ratio indicates that the stock is undervalued, so it seems a benchmark of 15 times or less is considered reasonable.
Residents in Japan can use “Yahoo Finance,” but I can’t use it due to restrictions on access from abroad.
If you’re trading US individual stocks
For researching US individual companies, there is a US stock version of Shikiho Online (https://shikiho.toyokeizai.net/us *In Japanese only).
The SEC (Securities and Exchange Commission) also operates a website that can be used (https://www.sec.gov/edgar/searchedgar/companysearch).
When using the SEC, the disclosure documents include 8-K, 10-K, and 10-Q:
8-K: Current Report, similar to Japan’s earnings flash report.
10-K: Annual Report, similar to Japan’s securities report. An annual report summarizing a year’s worth of financial results.
10-Q: Quarterly Report, quarterly reports submitted from the first to the third quarter.
Attending the company’s annual shareholder meeting is good
If you want to know about a company, it’s good to actually go to its annual shareholder meeting, see the president in person, and talk to him if possible, as mentioned in the video. That makes sense, but not many people can actually do that.
Investing, where 70-80% of participants don’t win, requires such efforts as a matter of course to find good investment opportunities.
The nature of what needs to be done is the same as in short-term trading
Just as it is desirable in day trading to verify hundreds of past results for each chart pattern, long-term stock investment requires thorough company analysis. Both require regular, continuous effort.
It’s an obvious thing when you think about it. There’s no easy money in the long run.
While investment is considered passive income, and indeed it has that aspect, it’s like a bonus.
Unless you have a large amount of capital, those who are scrambling to build that capital must engage in “steadily building up,” which is essential.
It’s probably a necessary action for almost anything, but especially so in the field of investment, which is easy to start and involves risk.
Whether or not you find that interesting might be an indication of whether or not you’re suited for investing.
When to read the quarterly reports
However, unless you’re a professional trader, it’s impossible to go through everything every time. I can’t do it.
When thinking about when to allocate time to the quarterly reports, it’s when a specific sector catches your eye in the news.
For example, now it might be shipping, the defense industry, or oil-related due to instability in the Middle East. However, it’s too late by the time something happens.
It’s desirable to anticipate the future based on the current social situation and research companies related to that anticipation.
For instance, it would have been sensible to get into semiconductors like Nvidia or SMTC by the 2020s at the latest, sensing the increasing demand for electronics related to EVs and AI, which was becoming apparent from the 2010s. It’s easier said than done.
Whether or not I have such sense doesn’t matter; I have to get used to it. Even if I’m not good at it at first, I’ll get used to it eventually, I tell myself.
