It is essential to understand the value of the company. Many people ask me at the conference that what do you think about private equity or hedge fund. I will say, realize what do you buy, and know the value of the company. Many people believe investing is so simple, and some people think it is tough to understand. To me, it is straightforward for financing, but it is very hard for understanding. We need to understand the business before we put the money into the market. There are many ways to study and learn the company, such as a financial report, management team, and business culture. For example, many people love the iPhone, and they all know if we want to make money in the market, buy Apple company stock shares. How many people own the Apple stocks have ever take a look at their financial report. Many people know it is an excellent company, but they don't know their financial statements. Maybe it was a good company last year, and its revenue is decreasing this year. Then, if an investor bought its stocks last year, they will lose money next year even if everyone said it is a very good company, and many people love their products. Many people know how much to buy the iPhone, but very few people know how much cost for an iPhone. The investor must understand the company and make sure they understand how the company makes money and how much money they make. For my speech at the December finance conference, I said many times that investors should know what they own. They can't make money by not knowing the company. They shouldn't call themselves investors; they are spectacular. Too often people invest in stocks market without a clue as how a company generates revenue, cost expenses, and produces profits. Only investor can make money from understanding the economic process of the company. That’s what Warren Buffett called “intelligent investor”.
Also, investor should understand the history of the company. "This time is different." This sentence probably cost most stock market investors far more than they know. Indeed, every period of time is different. Nonetheless, we can learn from history a lot of lessons that should guide how we invest today. Failure to learn from other people's past mistakes can be detrimental to your property. The history will tell people if the company was truthful company, and also if the company was keeping the promising. When there is company promise to achieve their goal five years ago and they didn’t reach it, then there is big probability they will fail this time again. In almost all aspects of human behavior and thought, history repeats itself, in that way, economic cycles replicate themselves. Basically, a financial market is the result of millions of collective human thoughts / behaviors shown on a price chart. You can use some of the collective thought. Many people think this time will be different. In inside of system, there are many things similar to each other. For example, fear and greedy. So, understand the business is very important in investing.
There are some questions that I could help people to understand the company more:
Is the business simple and understandable?
Does the business have favorable long-term prospects?
Does the business have strongly negative debt issue?
Does the business have a consistent operating history?
Is management work with shareholders?
What’s the business’s return on equity?
We could focus on many ways to understand the business in business aspect, management aspect, and financial aspect.