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Methods of analysis of a company for investing

Two approaches to analyzing a company's business for investing

Choosing a strategic approach to investing. For a successful investment, each investor needs to analyze the business of the company in which the investor is going to invest. There are two approaches to analyzing a company’s business:

  1. Deep.
  2. Statistical.

Let's consider these two approaches in more detail.

A deep approach to company analysis.

You study the business of the company very deeply and try to find out complete information about how the company conducts its business. You study the company for weeks, and sometimes months. You carefully study the news background, read through all the reports of the company and conduct the most in-depth analysis. This analysis approach is used by many investors. But at the same time, you will not be able to analyze a large number of companies alone due to time constraints. This is a disadvantage of this method. And the advantage of this method is that about the company that has been analyzed - you will know everything, every little thing! And you can most likely predict profitable trades.

A statistical approach to company analysis.

With this approach, you also analyze the financial statements of the company, but do it according to a pre-compiled list of criteria. Based on statistics, you already know the most important indicators, based on which you can make a financial picture of a company. Thus, much less time is spent on business analysis.

Using this approach, you rely on a statistical advantage, and average the profitability of your transactions. Compared with a deep approach to analyzing a company’s business, this approach will bring lower average profit per transaction. But such an approach will allow us to analyze a larger number of companies and, as a result, a larger number of investment ideas.

Both of these approaches are used by professional investment managers in their work. Each of the approaches is capable of generating profit. Here the question is exclusively of the choice of investor, depending on personal preferences and possession of a margin of time.

Thus, all of the above can be reduced to a convenient table for perception:

Approaches to the analysis of companies for investment.

  Deep Statistical
Advantages You know every little thing about the companies that have analyzed and can predict profitable deals on them with the highest probability. You spend no more than two hours analyzing one company. You can analyze more companies and find more investment ideas.
Disadvantages Digging for weeks and months in one company, you can analyze only a narrowly limited number of companies. With such an analysis, perhaps you will miss certain little things in the analysis that can ultimately decide the outcome of the transaction. You just use statistics and a certain number of transactions will be negative for you.

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