Getting Your Mindset Investing-Ready 2. How to Choose what Companies to Invest in 3. Analyzing a Company
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1. Getting Your Mindset Investing-Ready
2. How to Choose what Companies to Invest in
3. Analyzing a Company
Copyright 2021 The Sassy InvestorGetting Your Mindset Investing-Ready
You are your own worst enemy when it comes to
investing....
• The stock markets are made up of many companies
collectively
• The stock markets have never, over its entire history, ever
gone to zero...
Unless of course something crazy happens, like a
zombie apocalypse – if that’s the case, we’ll all have
much bigger problems!
• Therefore, if you’re invested in the stock markets (e.g. a
mutual fund or exchange-traded fund, which are generally
very diverse and contains many companies), your
investment portfolio cannot possibly go to zero.
On the other hand, if you’re investing in individual stocks…
• Individual companies can go bankrupt (e.g. Sears, Nortel)
But they can also provide above-average returns (e.g. Shopify,
Amazon)
(if you invest wisely!)
Copyright 2021 The Sassy InvestorEarning an Average Market Return
The stock markets have averaged 8% to 10% return per year
over its entire history.*
*Note: this is a straight line average, which means you’re taking a simple average of all
the returns from each year.
Copyright 2021 The Sassy InvestorPeople invest in individual stocks in hopes of earning an above
average market return (more than 10% return per year).
But if you expect above average market returns, you’re going
to have to put in a little bit more work!
Shopify Inc.
May 2015 - April 2020
$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
Nov-15
Jul-16
Nov-16
Nov-17
Nov-18
Nov-19
Jul-15
Jul-17
Jul-18
Jul-19
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
May-15
May-16
May-17
May-18
May-19
Mar-20
Jan-16
Mar-16
Jan-17
Mar-17
Jan-18
Mar-18
Jan-19
Mar-19
Jan-20
Shopify has returned 2,737% since its public debut in 2015.
That is, if you invested $1,000 in Shopify stock 5 years ago,
that investment would be worth around $28,000 today!
These are homeruns (more like grand slams, actually) and
what you want to strive for!
Copyright 2021 The Sassy InvestorWhile we all want homeruns and grand slams in our portfolios,
the reality is there will be investments that are pure strikeouts.
That’s the risk when investing in individual stocks. Some
stocks will perform okay. Some stocks will be terrible. Some
stocks will be fabulous.
The key is to make more money with your winners than what
you’ve lost in selecting losers.
This takes practice, patience, and due diligence on your part.
Great investors like Warren Buffett, Peter Lynch, George Soros
did not become great overnight.
In the following pages, we are going to go through principles
by one of the greatest investors today, Warren Buffett.
It is my belief that understanding his principles and how he
thinks are imperative to building a solid foundation for
individual investors that are looking to achieve limitless
returns.
Moreover, understanding characteristics of good businesses
will not only help you identify companies for your portfolio,
but in the event you decide to run or build your own business,
you’ll be able to apply these for yourself.
Copyright 2021 The Sassy InvestorThe following exercises will get you started on answering a
very common question, and that is “What companies should I
invest in?”.
You’ll also witness and hopefully appreciate the effort that
goes into answering what may seem to be such a simple
question.
Analyzing companies and determining whether they’re suitable
is a process, but one that can be applied over and over again.
We won’t go through the entire process in this workbook, but
just the first few steps to give you a taste of what to expect.
Remember, if you want homeruns in your portfolio, you’ll have
to put in the work. So let’s get started!
Copyright 2021 The Sassy InvestorWhat Companies Should I
Invest in?
• Invest in what you know
• Invest in franchises
• Look for “pure-plays” or niches (for high
growth stocks)
• Pure-plays are companies that operate
and focus on one line of business (as
opposed to companies with diverse
businesses)
• Look for disruptors
• AirBnB, Tesla
Companies or sectors that come to
mind…
Copyright 2021 The Sassy InvestorWhat Companies Should I
Invest in?
Look for companies that are
franchises.
What are Franchises?
Franchises
Product and Commodity
Services that: Businesses
1. Have no close Products and Services
substitutes that are
2. Are needed or indistinguishable
desired
from its competitors
3. Are not
regulated
Coca-Cola
Diapers
Funeral Oil/ Gas
Businesses
Chemicals Airline
Garbage
Wheat Services
Collection
Copper/ Gold
Copyright 2021 The Sassy InvestorWhat Companies Should I
Invest in?
Look for companies that are
franchises.
Franchises are products/ services
that…
1. Are Needed or Desired
Can people live without this?
How badly do people want this
product?
2. Have No Close Substitutes
Is there another company out
there making something
SIMILAR and CHEAPER?
3. Are not regulated
Does the government control
the prices that are
charged to customers?
Copyright 2021 The Sassy InvestorWhat Companies Should I
Invest in?
Look for companies that are
franchises.
1. Are Needed or Desired
The products and services the
company is producing, can people live
without this? How badly do people
want this product? Products that are
needed obviously have a stronger
case because “wants” can easily be
cut-back when times are tough.
These products are called
“discretionary products”.
An example…
“garbage service removal”
I need _______________________________,
(insert product/ service)
“diapers for my baby”
I need _______________________________,
(insert product/ service)
“my iPhone”
I can’t live without_______________________________,
(insert product/ service)
Copyright 2021 The Sassy InvestorWhat Companies Should I
Invest in?
Look for companies that are
franchises.
2. No Close Substitutes
The products and services the
company is producing, is there
another company out there
making something SIMILAR and
CHEAPER?
An example…
“garbage service removal”
I need/like _______________________________,
(insert product/ service)
…but I can also use …because
there is
nothing
“burn my garbage???”
_________________________, similar or
(insert other product/ service)
cheaper.
because it is similar and
cheaper.
Has Has no
substitutes substitutes.
Copyright 2021 The Sassy InvestorWhat Companies Should I
Invest in?
Look for companies that are
franchises.
3. Are not regulated.
Does the government
control how much
companies can charge its
customers? Does the
government restrict how
much profit can be made?
Regulated Utilities industries:
Hydro
Electricity
The government imposes restrictions on such companies to
ensure customers are getting charged fairly, therefore,
limiting any excess profits they can make. While this is
great when it comes to our household bills, it’s not so great
as an investment to earn above-average returns, so we will
ignore these types of companies.
Note: if you’re looking to add “yield” to your portfolio or “defensive”
stocks, utilities are a good choice.
Copyright 2021 The Sassy InvestorWhat Companies Should I
Invest in?
Look for companies that are
franchises.
Needed/ No Not
Desired substitute regulated
I _________________________
need/like (insert product/ service)
I _________________________
need/like (insert product/ service)
I _________________________
need/like (insert product/ service)
I _________________________
need/like (insert product/ service)
I _________________________
need/like (insert product/ service)
I _________________________
need/like (insert product/ service)
Copyright 2021 The Sassy InvestorWhat Companies Should I
Invest in?
Look for companies that are
franchises.
Publicly-traded simply means – you, myself, or
anybody on this planet, are free to own a piece (share) of
that company. These companies are available to the
general public. No discrimination here.
1. Take your list of items and do
some Google searches to see
which companies produce them.
2. Make sure those companies are
publicly traded. It’s as easy as
just typing in
“ABC Co. stock price”
If there is no stock price for it, it is
not public!
Companies that are not publicly-traded, that is, privately-owned, are
Ikea and Ferrero Rocher. Ferrero Rocher is one of the most secretive,
family-run businesses. Unfortunately, we cannot invest in these
companies, but there are no shortages of companies out there for us!
Copyright 2021 The Sassy InvestorWhat Companies Should I
Invest in?
Analyzing the Company.
Consider these questions when analyzing companies.
The Underlying
Business Model
1. Is the business simple and understandable?
2. Does the Company have a consistent operating history?
3. Does the company have favourable long-term prospects?
Management
1. Is management rational?
2. Are they open and honest?
3. Does management care only about short-term price performance and pleasing
Wall St/Bay St. analysts, or are they focused on the long-term direction of the
company.
The Finances
1. Focus on Return on Equity
2. Look at revenue growth
3. Look for companies with high profit margins
Market Value of the
Company
1. Determining the Value of the Company (and it does not mean looking at the
absolute value of the stock price itself!)
2. Buy at Attractive Prices
Copyright 2021 The Sassy InvestorAbout Michelle Hung
Michelle Hung is an author and founder of The Sassy
Investor, a platform for women empowering them to
take control of their finances and teaching them how to
build a lifetime of wealth.
She graduated from the University of Waterloo in 2008
with a Bachelor's of Mathematics, specializing in
Finance.
She has spent over 12 years working in finance, from
investment banking and venture capital in Toronto, to
now, personal finances and financial education.
Michelle is also a CFA charterholder. In her spare
time, you will find her at a hot yoga class or playing
competitive soccer.
You may have seen her lurking around in Canadian
Money Saver Magazine, as a contributing writer, doing
webinars for Questrade, or providing fun finance
videos for Meet Cleo on Tik Tok.
You can find her on Instagram or on Facebook.
Copyright 2021 The Sassy InvestorReady to take the next step?
Schedule a call with Michelle to see if the Private
Portfolio Bootcamp is right for you!
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