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I’m working hard (well that’s what I tell my publisher) on a new edition of Naked Trader which should be out this September.
A chapter I’m currently writing is titled: ‘Stories Vs Numbers.’
What are you rambling about Burns?
Us humans love stories.
That’s why people buy or read newspapers online.
As a journalist from an early age my job was always to sell a story.
And I also edited and wrote headlines for various national newspapers.
My favourite: a couple were about to go on honeymoon but the bride’s cat had disappeared so they couldn’t go. My headline?
‘Honeymoon is off: My pussy is missing.’
In regards to shares, a major mistake is to look for the story and forget about the numbers.
We love a headline. ‘Company seeks cure to cancer.’ Or ‘Revolutionary new AI.’
If you read most financial press, the story comes first, the numbers, well they often don’t get so much attention.
My tip is: make the figures come first, and the story comes second.
I know this from experience, I have bought into what seemed like an exciting story but the figures told the real story.
One example was a company called Xeros. It made exciting new washing machines that hardly used any water or detergent.
Fantastic. Trouble is it never made any meaningful profit.
Now it is always figures first. Finding out the company’s story comes next!
First port of call then is what’s the profit, what’s the debt, what’s the forecast, what’s the market cap, how’s the dividend?
Only if the figures look decent do I then plough on into the story – what does it do?
If the story is great well, that’s a nice bonus.
When you find a company then, however you do it, ignore everything you read about it story-wise first.
Concentrate on the numbers first and nothing but the numbers.
Simple. Are they going up? Is it making a profit? Is the valuation sensible?
If you start to frown and the valuation looks crazy it probably is a story share.
Consider this carefully: Do you want to buy this share just because of the nice story?
If so, don’t reach for the buy button till you’ve checked those numbers.
If it isn’t making a profit and there is no sign of one to come, then it is probably just a story.
Be honest with yourself and please check the numbers. After all the dragons in Dragons Den don’t just buy the story. They always ask, ‘What are your numbers?’
And if those numbers are poor, however good your story they will be ‘out.’
There is more on how to look at numbers in my recent book The Naked Trader
Guide to Trading Strategies; https://amzn.to/3VHlSUp
