Having investment triggers that start your investment research are important. It’s worth the time to list your triggers. Doing so speeds up your search for the next great investment choice. Every investment process starts with a trigger. Everyone uses a trigger, yet most probably don’t realize it.
Investment triggers are data or comprehension of an event or idea that start the curiosity process of investing. Simple triggers can be seeing something that is new to you that sparks curiosity, or a data point you find during a screening process that highlights a particular company as something that needs further investigation.
Some examples of triggers are a new product, people talking about usage, your kids wanting something you’ve never heard of, an advertisement, an article report, a podcast, an accounting data point, a data screen anomaly, a new store opening, a merger, a buyout, or a change in how people are doing things are a few examples. If you have a clear understanding of the triggers that have worked best for you in the past your investment process gets a sharper focus.
Take the time to identify triggers that have worked for you in the past, and list them. You’ll see that by doing this you’ll find more ideas quickly which helps to wrangle in the investment process a bit. Once you have your listed triggers the next aspect you will need is a strainer.
Strain Your Trigger
A strainer is much like the same strainer you use in the kitchen. It is a data point that you want to focus on that you feel has to exist in order for you to continue further with your investment process. Vetting a potential investment idea you plan on owning for years is extremely time consuming if done properly. The time of data and accounting verification, hours of reading anything you can find regarding the investment, and if possible visiting any local site or place where the investment may interact with their consumers to gather feedback.
Strainers can be many different things. It depends on what you want as the most important element to your investing process. A strainer could be revenue growth, returns, gross margins, free cash flow, debt, self funding, moat strength, durability, insider buying, or the CEO’s track record. When your trigger uncovers an idea you can strain it quickly to see if you want to start the full investment process.
There are many data screeners as a source for triggers or as a strainer available from internet providers. If you want a more serious screener or data download there is software available at sites such as Equities Lab, GuruFocus, Morningstar, and QuickFS as a few examples. These sites work great. Some are simple and some require more complexity.
Starting with a mantra to your investment process is an great way to formulate your triggers and strainer. As an example your mantra could be “investing in growing food companies that offer healthy solutions.” Then you would develop triggers that would help you locate companies with the qualities you are looking for, and then once you locate them use your strainer metric to see if you need to go further with your research.
The other great benefit that a solid trigger and strainer investment process provides is that it will make you aware of when the general investment landscape may be getting pricey. If your strainer produces only one good idea the market may be getting hefty. The opposite can be true with an undervalued market when your rinse may produce many items left in your strainer.
Having defined triggers and a strainer is key to the research process. Otherwise, the process can get overwhelming quickly. With thousands of companies to choose from it is easy to get lost and frustrated without having a clear step by step process. Even a clearly defined process is time consuming in order to make sure you are investings well.
Have questions? Contact me here.