Investment Philosophy, Rule No. 3: Find a Catalyst

Motley Fool analyst Jason Moser chats with Rick Engdahl in a side-of-desk interview about developing a personal investment philosophy, and shares his own four-point system for deciding whether a particular stock is right for his portfolio.

Jason's third question when considering an investment is why he should invest in a particular company or industry. Whether it's a cyclical industry like energy, or a far-reaching trend such as e-commerce, look for a reason that your chosen company is going to remain relevant over time.

A full transcript follows the video.

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Rick Engdahl: There are lots of different types of catalysts, going into your third point here.

Jason Moser: Yeah.

Rick: You're talking about short-term events or long-term events; does either hold more weight to you? I would assume as a long-term investor you're looking for those trends. What would be an example of a short-term event that is still meaningful, you think, in the long term?

Jason: Well, a short-term event may be something a little bit more related to some type of a cyclical company, or an energy-style company. Think about the price of natural gas, the price of oil, or the price of coal.

You're catching, maybe, this investment when all the pessimism is baked into the stock price. The price of natural gas I think today is a great example. It's kept these natural gas companies, their stock prices, relatively depressed over the recent months. At some point, you have to feel like natural gas prices are going to come back up.

They say the solution to low natural gas prices is low natural gas prices, because eventually you use so much of it the demand pushes the price back up. That would be kind of a short-term catalyst if you're looking for something like that.

It requires a little bit more attention, and I think it requires a little bit more of an understanding of all of the players involved, particularly if you're looking at something like energy because there are so many players involved.

But you're right. I think typically I look for something a little bit more geared toward a long-term trend. That, for me, just as an investor with a longer time horizon, is a bit more attractive.

I think that the easiest one for me has just always been the trend toward e-commerce, because we've seen the Internet sort of take over in a short amount of time here. Growing up, where the normal behavior was on a Saturday you'd maybe go to the mall and do your shopping, that has certainly taken a turn.

[Amazon.com (NASDAQ: AMZN  ) ], now with the advent of Prime and two-day shipping, and just ordering at the click of a button, and mobile technology, and everything like that -- all of a sudden you realize that, even though the retail environment here in the United States alone is huge, e-commerce only makes up maybe around 6% of that, in total.

What that tells us is that we're still just in the very early stages of this. It's not just Amazon, right? All these companies are really developing their online strategies and learning how to benefit from that.

I think Urban Outfitters is another good one. I think it's responsible for the Anthropologie brand. What is another one? William-Sonoma; they're also really focusing in on that e-commerce platform and mobile, and learning how to take advantage of a lighter capital structure.

If you can sell a lot more stuff without having to maintain these big stores, then more power to you. You've seen Best Buy, I think, take a pounding here recently because of everything that Amazon, for example, has done to change the game there.

When you find a CEO like Jeff Bezos, who's virtually relentless in looking to figure out any which way to make life seemingly easier for the customer, customers not only win, but I think it's also a great example of where investors can win, too.


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