Last Updated on December 3, 2024
Overview – Never Underestimate the Power of Making Good Observations
Whether it’s investing or our personal lives, there is no shortage of places to look for the information we want. Given the various forms of media now available to us, and the widespread accessibility of this media through the internet, finding what we want to know about is usually a straightforward, hassle-free affair.
While this ease of information gathering is certainly beneficial, it poses a unique challenge to investors in particular: because so much information is publicly available, it has become increasingly difficult to find information that other investors aren’t already privy to, making it that much harder to find unique information or opportunities that others aren’t aware of.
Investors who rely solely on what countless others already know will find it challenging to differentiate themselves from the crowd. What can investors hope to do, then?
By learning to make good observations, investors can pick up on things others may have overlooked or haven’t caught onto yet, giving them the competitive edge they seek.
Traditional Sources of Investment Information Are Important, but Aren’t Always Enough
While the focus of this article is to look beyond traditional sources of information, this doesn’t mean that they can be disregarded entirely.
Some common sources of investment information like annual/quarterly reports, press briefings, and news articles still play an integral role in an investor’s work. When looking up financial data, one of the most reliable sources is a company’s annual/quarterly reports. Developments in the investment and financial world are diligently reported by a plethora of news outlets.
Conventional sources have been and will continue to be, an important part of an investor’s work. But while traditional sources constitute the “bread and butter” of an investor’s informational needs, there’s only so much they can provide.
As we briefly mentioned in the overview, because of their widespread distribution and ease of access, almost anyone, investors and non-investors alike, can access them. Because of this, the chances of picking up on something that others haven’t already noticed are slim. A popular company such as Apple will have, at least, thousands of investors, analysts, rival executives, and competitors carefully go over all of their publicly available documents, making the chances of finding an “unturned stone” highly unlikely.
Of course, some traditional sources of information may still have undiscovered insights due to a lack of popularity or because the information is presented in an obscure manner, but these instances are uncommon.
Now, there are investors who are cognizant of this issue, and know about the importance of “looking outside the box”, but how can this be applied in practice? One relatively simple, yet highly effective method is by knowing how to make good observations.
If done properly and in the right places, investors can uncover all sorts of valuable information and potential opportunities that others may have missed or simply overlooked by keeping their eyes and ears open.
What Observations Should Investors Be Making, Anyway?
It’s easy to say “Go out and make observations to gain information and insight”, but what exactly should investors be on the lookout for?
Observations, in the context of this discussion, can take on multiple forms and be conducted in various ways, despite its visual connotation. Theoretically speaking, almost anything that investors read, hear, and experience in their daily lives can be classified as an observation. Let us demonstrate with some examples.
Imagine you’re an investor in the early 2000s, and you routinely go to Costco. You notice that every time you go, the warehouses are always busy, and it seems like every year it gets busier. Upon seeing this bustling activity, you decide to investigate Costco further as a potential investment. Now, more than 20 years later, Costco’s market valuation has rapidly shot up and exhibits no signs of slowing down anytime soon.
Say you’ve recently decided to expand your portfolio beyond Canada/USA, and are trying to find new regions in the world to deploy your capital in. While performing your research you learn about Southeast Asia and read about how it’s home to some of the world’s fastest-growing economies. Several financial news outlets and independent research reports corroborate this supposed rapid economic growth, leading you to study the region more in-depth to look for potential investment opportunities.
Because of your connections, you’ve recently been invited to a business luncheon featuring your country’s major business leaders. During the luncheon, you learn and hear about some of the major business developments going on across the nation, with some things you’re hearing about for the first time due to their absence on publicly available media.
No matter how many examples we go through, the idea will always be the same: making observations can be done in multiple ways, and constantly surround investors in their daily lives – the onus rests on investors to stay alert to discover them.
What may seem like a regular occurrence, a relatively unimportant bit of information, or a boring event may turn out to be the unique information or inspiration that investors were looking for, enabling them to get ahead of countless others who didn’t pick up on this.
Of course, this isn’t to say that every observation that investors make will be beneficial – investors will still need to judge which observations are potentially beneficial or not. Rather, this is a reminder not to brush things off so quickly and to stay attentive as much as possible – the unconventional sources of information that investors come across may end up surprising them.
Observation is a Preliminary Form of Research
Despite its effectiveness, it’s important to note that making observations has its limits. One of those limits is that observation will always be, at best, a preliminary form of research. Observations can help investors uncover things that others may not know about or have overlooked, but it’s still their responsibility to dig deeper.
Looking back at our examples in the preceding section, we can see that’s the case.
You may have noticed Costco’s perpetually busy stores as a sign that business is good, but you still need to go over the financial data to support your suspicion. Southeast Asia may be a good place to invest in, but you still need to figure out which countries to focus on and which specific areas to invest in. A business luncheon with major business leaders may contain an abundance of high-quality information, but it’s your responsibility to figure out which bits of information are worth paying extra attention to.
Observations have the power to uncover potential information or prospects that could give investors an edge, but observations alone won’t be able to determine if that’s truly the case. In-depth research will always be indispensable, which leads us to our next point.
Observations Complement Traditional Sources of Information, Not Replace Them
At the start of this article, we discussed how relying solely on traditional sources of investment information will seldom lead to any hidden insights or opportunities because of their widespread availability and ease of access. To help counter this, one solution is to know how to make good observations.
Despite their effectiveness, observations can only uncover potential areas of interest that may be worth studying further or pursuing but are unable to reveal the entire picture. Observations alone can’t provide investors with all of the information they need to make a decision.
Because of their unique strengths and drawbacks, traditional sources of information and observations are not opposing elements, but are instead two sides of the same coin. Only when they’re used in conjunction can investors hope to gain a significant advantage when it comes to finding unique information and opportunities.
How these two elements work in practice is relatively simple: investors make observations to discover hidden or overlooked insights and inspiration, then turn to traditional sources of information to verify if their observations have any substance to them.
Observations without anything backing them up are nothing more than speculations while adhering rigidly to traditional information sources will rarely lead to new ideas being discovered. But when used together, investors have a very powerful combination at their disposal.
Wrapping Up
Investors are always looking for information or opportunities that will put them ahead of everyone else, but finding something that others (or at least a few others) haven’t already picked up on is difficult. Instead of relying solely on the sources of information countless others are already using, investors can uncover unique information and opportunities by taking the time to make observations.
“Observations” can be made in various ways, whether it’s based on what investors experience in their daily lives, what they read or learn about, or what they hear from other people. In a way, there are no limits as to what investors can observe.
Despite their power, observations only serve as a preliminary form of research at best. Because of this, observations must be substantiated by traditional sources of information to discern if there is any credence to them or if they won’t lead to anything useful.
