Finding the best shares for you
How to find great companies at attractive prices that align with your individual investment goals.
There are more than 50k publicly traded shares in the world. There are also countless opinions on which shares should be purchased and which should be avoided. It is unsurprising that many investors don’t know where to start. We created these three episodes of Investing Compass to try and cut through the abundance of options available for investors.
At Morningstar we believe that the secret to strong long-term share performance is to find great companies at attractive valuations. We also believe that achieving your individual goals requires finding the right types of companies to buy. We covered each of these concepts in depth in our three episodes on share investing.
Episode 1: Finding great companies
Encouraging investors to find great companies is easy enough to say. Investors are not actively trying to find terrible companies. The difficulty is determining what makes a company great and then finding which ones meet those standards.
At Morningstar we believe a great company is one that is able to hold competitors at bay and deliver great results for shareholders. Capitalism is competition and when it works correctly companies will aggressively compete for customers. That is good for consumers as competition generally means companies will try and deliver the best goods and services at the cheapest possible price. As an owner of a company that is not a great thing as constantly improving goods and services costs money. When combined with low prices this reduces profits.
A great company has a sustainable competitive advantage or moat that reduces the financial impact of constantly competing for customers. In this episode we outline moats, the sources of moats and the ways a moat benefits a company over the long run.
Episode 2: Valuation
Valuation levels are a significant driver of long-term returns. The price of share is irrelevant. What matters is how much investors pay for the future profits generated by companies. Sometimes shares are fairly valued when the market correctly assesses future profits. Sometimes companies are overvalued when investors are too optimistic. The best times to invest are when companies are undervalued and investors are too pessimistic about future prospects.
In this episode we discuss how to value a share.
Episode 3: The right share for you
Companies come in all shapes and sizes. There are large global companies in mature industries which pay high dividends, small companies in emerging industries which don’t pay dividends to invest in growth, and everything in between.
In each category investors can find great companies at attractive prices. However, since each investor has unique goals finding a great company at an attractive price is not enough. The key to investment success is finding the type of company that aligns with your individual investment strategy and temperament.
In this episode we discuss the different attributes of companies and how to find the right one for each investor.
Thanks for listening!
