Podcast Summary
Exploring LinkedIn for Hiring and Stock Picking Strategies: LinkedIn is a crucial platform for small businesses to discover potential hires and over 70% of users don't visit other job sites. For investors, LinkedIn isn't just for networking but also for stock picking using quality, value, momentum, and dividend investing strategies.
LinkedIn is a valuable resource for small businesses looking to hire top talent. While you may not find all professionals actively seeking new jobs on LinkedIn, the platform hosts a large number of professionals who might be open to the right opportunity. In fact, over 70% of LinkedIn users don't visit other leading job sites, making it an essential platform for discovering potential candidates. Meanwhile, for investors, the world of stock picking is becoming increasingly popular as market conditions become more challenging. If you're considering investing in individual companies, it's crucial to understand the data-driven process of stock screening. Algie Hall, an expert in the field, suggests four ways to beat the market: quality investing, value investing, momentum investing, and dividend investing. These strategies, while formulaic, can help you make informed decisions when picking stocks. However, it's essential to remember that investing always carries risk, and seeking advice from a qualified financial advisor is always recommended.
Understanding Stocks: Focus on the Stories Behind the Numbers: Learn the basics of stocks, focus on the stories behind numbers, and use stock screens to narrow down potential investments based on quality, value, growth, or income strategies.
Understanding the stock market and investing in it is more about grasping ideas than mastering complex numbers. Algy, a financial journalist and author, emphasizes that fear of numbers is common but once the basics are learned, it becomes easier. He suggests that people should focus on understanding the stories behind the numbers. To help narrow down the pool of potential investments, Algy introduces the concept of a stock screen, which is a set of tests for stocks to pass based on specific strategies. He discusses four common strategies: quality shares, value shares, growth shares, and income shares. A quality share is a company that invests well in itself, making a high return on capital, and has strong brand loyalty. An example of such a company is LVMH, the French luxury brand. By using stock screens, investors can effectively winnow down the thousands of stocks in the market to those that align with their chosen strategies.
Investing in high-quality stocks for long-term returns: Investing in genuine quality stocks with competitive advantages and dividends can provide both capital appreciation and regular income, but investors must avoid overpaying for potentially overhyped growth stocks.
Investing in quality stocks, despite their high prices, can yield significant returns over time due to the concept of compounding. Real quality companies, such as RELX and Diageo, possess unique competitive advantages, like owning valuable data or iconic brands, making it difficult for competitors to challenge them. Additionally, some companies pay dividends, which represent excess profits that a company returns to its shareholders. These stocks can be worth considering as they offer both potential capital appreciation and regular income. However, it's crucial to distinguish between genuine quality companies and growth stocks that may be overhyped and overpriced. The risk lies in investors overpaying for these stocks during market excitement, only to experience significant losses when the market corrects itself.
Consistent dividend strategy outperforms despite slower approach: Companies focusing on consistent dividends can provide substantial returns, even during tough times, and counterintuitively, this strategy can lead to significant rewards.
Conservative companies with a consistent dividend strategy, often seen as returning a "gift" to shareholders, can outperform despite their slow and steady approach. These companies tend to persist during tough times and provide substantial returns. Conversely, investing in momentum, or companies with high growth potential, carries higher risk. The dividend strategy is counterintuitive as it focuses on what a company isn't doing, but it can lead to significant rewards. Examples of successful dividend payers include JD Sports, which faced challenges but remained financially sound and addressed its issues, and certain oil stocks, although their stability is questionable.
Combining price and earnings momentum in momentum investing: Mitigate risks of market bubbles and whipsaw reversals by combining price momentum with earnings momentum. Identify stocks with frequent earnings upgrades to maintain momentum, such as Ashtead.
Momentum investing, which involves buying stocks with rising prices, can be highly profitable. However, it's essential to be aware of the risk of market bubbles and whipsaw reversals, where the market gets overexcited and prices plummet. To mitigate this risk, the author suggests combining price momentum with earnings momentum, which can help identify situations where upgrades to earnings forecasts are frequent. For instance, stocks like Peloton, Ocado, and AO World saw significant momentum during the pandemic but experienced sharp reversals when consumer habits changed. One example of a share that has maintained momentum is Ashtead, a company that hires out equipment for building and data centers. Its business model is particularly well-suited to pushing upgrades through from brokers due to its sensitivity to good news. Despite the risks, momentum investing can be beneficial if followed in a smart way, but it's crucial to avoid joining in at the end when the market is about to turn.
Finding undervalued stocks through contrarian value investing: Contrarian value investing involves buying stocks of underperforming companies with potential for turnaround, often trading at discounts. Using a variety of stock screens, including contrarian value, can help uncover opportunities.
Contrarian value investing, as described by Algy, involves finding and buying stocks of companies that have been performing poorly but have the potential for a turnaround. These companies may be affected by external factors, such as regulatory changes or economic cycles. The strategy can be particularly effective when the shares are trading at a significant discount to their historical standards. According to Algy, this approach has been successful in the past, with the Investors Chronicle's quality screen, which includes this strategy, producing a cumulative total return of 508% over a 10-year period. However, it's important to note that past performance is not indicative of future results. Algy also mentioned that other screens, such as the yield screen and the momentum screen, have also been effective in different market conditions. Overall, the key takeaway is that using a variety of stock screens, including those that employ a contrarian value approach, can help investors uncover opportunities that may be overlooked by the broader market.
Outperforming the index through quality, dividends, momentum, and value: Quality shares outperformed the index by 388%, dividends by 267%, momentum by 262%, and value by 142% over a decade. Use data services like Sharescope and Stockopedia and read recommended books for effective stock screening and understanding companies.
Investing in quality shares, focusing on dividends, momentum, and value can yield significant returns. According to the discussion, quality shares outperformed the index by an impressive 388%, while dividends outperformed by 267%. Momentum came in third with a 262% outperformance, and value, although the least effective of the four, still managed to outperform the index by 142% over the decade. For those interested in creating their own stock screens, a good data service subscription is necessary, with Sharescope and Stockopedia being recommended options. As for books, "The Little Book that Builds Wealth," "The Little Book of Behavioral Investing," and "How to Pick Quality Shares" are recommended for understanding company advantages, biases, and using company accounts and ratios, respectively.
A multitalented guest with a diverse skill set: Algy, the podcast guest, demonstrates that individuals can excel in multiple fields, from finance and illustration to journalism.
Algy, the guest on the Money Clips podcast, is a multitalented individual who excels in various fields, including finance, illustration, and journalism. He has authored numerous children's picture books and a finance book, with the latter receiving praise for its investment strategies and hard work. Despite his success in finance, Algy initially pursued a career in illustration before transitioning to financial journalism. His diverse skill set serves as a reminder that individuals can be proficient in more than one area. The Money Clinic podcast, which features discussions on financial topics, is produced by a team and does not offer individual financial advice. If you're interested in being a future guest or providing feedback, reach out to them at money@ft.com. Stamps.com and Osea's mega moisture duo were mentioned as sponsors, offering efficient business solutions and high-quality skincare products, respectively.
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