A common mistake in buying stocks, investing or owning a business is too much focus on what happened and not on what is coming. The past is over and while all management teams and investors can learn from it, the key is planning for the future. For investors it comes down to figuring out what that future is worth in today’s dollars. There are some habits that good business owners must adopt to succeed that force them to deal with the future as well as the current reality.
1) Understand the business climate: End markets often changes quickly and the best way to track is with data that is as close to the customer as possible. For some businesses, like a retailer, this is easier since they are the final point of sale. But for their suppliers and their suppliers, suppliers, this is a challenge. Finding good industry data points to track can help but often lacks the level of detail required. Investors and businesses alike can use a research firm, like Research Optimus, to dive into end markets and find information on actual market conditions instead of waiting for earnings reports and other backwards looking data.
2) Key leading indicators and drivers of demand: If you are investing or managing a business, know what the drivers are. It seems obvious, but it is easy to forget there is a cycle in most industries and decisions and sales forecasts need to account for the cycle. The most dangerous words on Wall Street are often “it’s different this time” followed by a reason why this business is no longer cyclical or can rise above it. The odds are it is not different this time and your company or investment will not avoid cyclical headwinds. For some industries there is easy to track data – such as new home builds for a shingle manufacturer – for others it’s more complex and may require the construction of a proprietary data set. This will take time but improve investment returns and decision making.
3) Conduct market research: Businesses need to know what is going on in their end markets and make sure management knows current market conditions. For investors, the same approach works. By conducting market research, firms can find out customers perception of their its products, seeing if the firm is truly a premium brand, a price leader or price taker and identify other key information. In addition, proactive and frequent market research can identify holes in the market, or shifts in demand. This information is critical for a company to stay ahead of the market and for the investors to see opportunities first and generate alpha.
Conducting market research, identifying and tracking important drivers and understanding the operating environment are all critical tasks but often hard to find time for on top of day-to-day activities. There are firms that help with this for companies and investors that do not require a full-time employee in market research, Research Optimus is one of those firms.
– Research Optimus