Monitoring profit growth of listed companies

Coordinator Loic Grasset

Updated

Investing for the long term by focusing on the fundamentals of listed companies allows you to hope for better results with less volatility. In any case, this is the approach advocated by Youssef Harrabi, co-founder of MasterBourse, a website for learning to invest in the markets.

Paris match. Why is stock selection important in the stock market?
Yusef Harraby. To achieve above-average results by investing in low-quality companies, you need to achieve this yourself by buying very cheap and selling at the right time. It requires a certain level of knowledge, practice, a supportive environment and a bit of luck. If you invest in great companies, managing your portfolio becomes much easier.

Is it to say?
By prioritizing quality files, and since you don’t pay much in the beginning, you just have to let yourself get carried away by the economics the company delivers, and then hold onto your titles for as long as possible while the financial results are in and your investment thesis is solid. The price in the stock market ultimately only follows the evolution of the earnings of listed companies.

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What are the benefits of owning such shares?
Their performance in the stock market is less chaotic than in the rest of the market, so your performance is achieved with less price volatility. This is a very tangible mental advantage: when the market drops 20% in a few weeks and you only lose 7% to 9%, you are less tempted to sell. You are less likely to make mistakes related to your investor psychology. Financial theory tells us that in order to make more money in the stock market, you must take more risks. These values ​​show the opposite.

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How to determine the best files?
A strong and sustainable competitive advantage over time is manifested in the loyalty of the consumer, who continues to buy goods or services, even if there are much cheaper alternatives nearby. In the BtoB markets [entre entreprises], the competitive advantage must be such that the integration of the offer into its customers’ process makes it difficult to replace it. Your professional life can also give you experience that is sometimes better than that of financial analysts in the field. You must use your knowledge! Some hunting grounds are more favorable than others. We highly value mid-sized companies that have proven their business model to be successful and have successfully gone international while remaining more agile than large groups.

What are the attributes of a nugget in the stock market?
Four criteria must be considered: competitive advantage, profitability, growth prospects and management competence. The first concerns the perceived added value of the products or services provided. You need to ask yourself if the company you want to invest in can raise prices without losing customers, and if so, why. Then you have to make sure that this competitive advantage translates into much higher profitability than the competition. Management’s review aims to ensure a fair and prudent distribution of the wealth generated without prejudice to minority shareholders.

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When should securities be sold?
You can keep them as long as your investment thesis remains valid. It is important to write down somewhere why you bought and refer to it. If the situation changes, company-wide or macro-economically, you are free to cross the line, regardless of the level of your unrealized capital gains or losses. Your cost should not influence your decision in any way. This allows you to start on a good basis for new investments.