(Summary: Chapter 2)
The main work of an analyst is to carefully select and make further decisions on the retention, sale or additional purchases of the selected asset. In turn, this approach consists of 4 fundamental elements:
1. The security
2. The price
3. The time
4. The person
The personal preferences of the buyer play an important role in every purchase.
In other words, in each purchase, a certain individualism of the direct purchaser manifests itself, expressed in a whole set of characteristics, such as financial literacy, level of competence, its character and preferences.
The time of purchase also plays a huge role, since the financial indicators and the state of the same company can differ dramatically over time. Therefore, it can be argued that even for the sweetest assets, there is both the right and the wrong time to buy the asset. Although at the same time the applied standards and methods of competent analysis of securities should be applied regardless of time.
Price is an integral part of every judgment regarding securities. Despite the fact that the market rarely determines the wrong price of an asset, it is also important how adequately the asset is protected.
Security — here, first of all, it is worth paying attention not to the securities themselves and their market value, but to the very nature of the enterprise and the terms of the proposed commitments. Since even the most attractive companies can offer far from the most favorable conditions reflected in their securities.
Also, this chapter pays special attention to such concepts as ambiguity, non-obviousness and relativity in the approach to the analysis of securities. We can even say that there is a high proportion of inconsistency in some provisions, but later they are revealed in a more multifaceted way with specific examples, which in turn indicate that some methods have a higher weight in certain situations.
The ambiguity of the approach to each specific asset, or even an individual approach to each asset, along with the applicable standards, may be the only true for an analyst desperate to describe each asset in a truthful manner — that is, as closely as possible to reality and reflecting the real state of affairs.
Particular attention is paid to the problem of qualitative and quantitative indicators. As a result, it becomes clear that quantitative indicators are undoubtedly important, but somehow they are a consequence of the nature of the business and a retrospective of how this business has developed in the past. Of course, quantitative indicators of the past can correlate with what we may see in the future, but they cannot be the ultimate truth, because it is already part of the history (Even if history has the ability to repeat itself).
This is because quantitative indicators are always a consequence. The reason is always there and will be quality factors, because in the end it makes sense exactly what the business lives on? how does it work? who is in charge? what is the company’s reputation (in many aspects)? What value does this business produce for the economy of a particular country or even the whole world?
In other words, what is the degree of impact of this or that business on the surrounding reality?
Thus, I can conclude that all factors make sense in the analyst’s work and at the same time they are all relative. But the most important thing is how all qualitative and quantitative indicators are built in the individual approach of each specific analyst and in what order these indicators are taken into account and applied in attempts to determine the true value of an asset (which is also, first of all, a subjective parameter) at any given point in time.