How to analyze prospective investments

The best way to achieve results in unstable markets is to intensify individual equity analysis, says David Graham, vice president and portfolio manager at CIBC Asset Management and manager of the Renaissance Canadian Monthly Income Fund.

“Investors need to look at hard, meaningful data,” instead of following newspaper headlines, he says.

When considering stocks, for instance, Graham says people should write out pros and cons rather than just search for current news on the companies.

They should then ask: How does this add to my portfolio? If there’s no clearly defined purpose, don’t add the stock.

Also, avoid getting too friendly with a company too quickly. “I’ve seen many people have lunch with a corporate representative, and come away with a great story and the urge to buy stock immediately.”

He adds, “It’s better to take a day to figure out the real worth and potential of the company in question.”

Be aware of all contextual data. “It’s better to look at a company’s performance over a few cycles of both good markets and bad markets. Collect stories about the business from different industry sources, and then go back and determine which data and information ring true.”

The same process applies when considering mutual funds. You should be able to answer these questions before investing: What do you expect out of this fund? What has its historical return been and why? How volatile has it been over time?

Then, get to know the fund managers. It’s key to maintain a good relationship and comfort level with the managers of any fund you choose to incorporate into clients’ plans and portfolios.

Graham also suggests analyzing the potential of a company further into the future than is the norm. “The normal approach is to look at the current year and the next year, with most of the focus on the current performance of a company.”

He says, “We’re trying to get our internal analysts to look three-to-five years down the road instead, and forecast future results.”