Yesterday David wrote about the different investing styles that are taught on the Fool, from beginner to advanced. Whatever type of investor you are, the moment that you begin to invest in individual companies, you're raising the bar. What bar? Your own bar! Your own bar of self-accountability and increased homework. If you invest in individual companies, you should understand those businesses very, very well.
Today in this column we introduce Motley Fool Research analyst, John Del Vecchio (TMF Fuz), to learn what he brings to the Fool community and what talents and convenient services (i.e., helping on your homework) he and the Motley Fool Research team offer investors. John has been reading the Fool for several years and he became an employee in December. John's an exemplary, smart, and interesting Fool, and we're proud to introduce him here today so that he can share his thoughts with you on Foolish investing.
Rule Breaker: John, introduce yourself and tell us your background. Also, explain what brought you to the Fool and to Motley Fool Research in particular.
TMF Fuz: I first became interested in stocks when I was 15 years old. I decided at that time that I wanted to have complete control of my financial future. In my opinion, my financial health was far too important to leave for others to decide. So, I started reading some basic books on stocks. I also read financial publications such as Business Week and Financial World on a regular basis (the Internet was not really around in those days). My investment approach is constantly evolving as I develop new skills.
Deciding what I wanted to do in life gave me a lot of direction and I became more focused. I started following the Fool while I was in college. I found the common sense approach to be very appealing.
I worked on Wall Street for a couple of years as a quantitative analyst for the international division of a large asset manager. When I learned that the Fool was launching a research product, I applied. I felt that the experience would balance my skill set and appeal to my entrepreneurial spirit.
I found the opportunity for Motley Fool Research appealing on a couple of fronts. First, The Motley Fool has no "company line," and analysts are free to draw their own conclusions about the companies they write about. Second, as the stock market becomes our nation's newest pastime, I think it is important for individual investors to have quality analysis for making investment decisions.
Rule Breaker: What do you cover in Motley Fool Research? Do you consider any of your companies Rule Breakers?
I do not think that any of the companies that I currently follow are Rule Breakers. Many of them probably were at one time, however. Wal-Mart broke the rules in retailing, Apple led the personal computer revolution, and EMC took on Big Blue -- IBM (NYSE: IBM) -- to become the leader in storage devices.
Rule Breaker: What does the new Motley Fool Research division hope to accomplish for investors and its customers?
TMF Fuz: Well, I hope the division is able to educate, amuse, and enrich all investors who come in contact with our products. Over time, as our coverage expands into more companies and industries, I hope that the analysis continues to provide more and more new investment ideas. Also, investors who read our reports hopefully gain more insight and become more comfortable with understanding the stocks that they own or are considering owning.
I also hope that Motley Fool Research becomes a vehicle for spreading Foolishness far beyond the 2 million visitors to our site. With over 100 million people in the U.S. invested in the stock market, and hundreds of millions more worldwide, there is a huge opportunity to spread the Foolish principles to the four corners of the world.
Rule Breaker: In your personal life, what do you like to see in a company before you'll invest in it? Can you share some of your favorite investments that you personally hold?
TMF Fuz: Well, I like the number one or number two player in an important industry. I like high barriers to entry, high switching costs, and economies of scale. Financially, I like companies that have strong cash flow and return on invested capital. In terms of cash flow, I like companies that exert leverage over their suppliers and buyers by looking at receivables, payables, inventory, and cash on the balance sheet.
An investor can also use the Foolish Flow ratio to easily decipher cash management. I have begun to focus less and less on earnings, and more and more on cash flow. Lately, I have been working on quantifying a firm's competitive advantage period. This helps investors determine what expectations for the stock are implied by the market price. It is a really cool tool, and I will be including this analysis in some of my future reports.
In my personal portfolio, I have owned the S&P 500 index for a few years, the Nasdaq 100 Trust (Nasdaq: QQQ) since it has been traded publicly, and several market leaders. I own companies like Intel (Nasdaq: INTC), eBay (Nasdaq: EBAY), and Siebel Systems (Nasdaq: SEBL). I also own several others, including Microsoft (Nasdaq: MSFT). My portfolio is focused on less than a dozen companies.
Rule Breaker: In your view, how well should an investor know and understand a company before buying shares? Can you quantify or qualify this need somehow?
TMF Fuz: Like the answer to most questions, I would say that it depends.You should know your limits and spend plenty of time developing objectives.
I have no idea how to make a computer, but I am not uncomfortable with analyzing computer manufacturing stocks. The same goes for routers or storage devices. On the other hand, I don't feel comfortable with DNA and biotechnology stocks. So, I would probably seek out analysis from knowledgeable scientists and researchers. I would attempt to understand the key value drivers for the industry and determine whether or not I feel comfortable plunking down my cold, hard cash in the form of an investment.
At the very least, I think the investor should understand the key value drivers for the firm and the industry under study. If the stock is a technology stock, it also helps to think about how technology develops and the role of the company in the whole scheme of technological innovation.
Brick and mortar companies are much easier to understand in my opinion. If you are the type of person who likes to "kick the tires," checking out the parking lot at Wal-Mart during the holidays to see if people are spending money is pretty easy.
A good strategy is to buy what you use. Many people shop at Wal-Mart and Home Depot (NYSE: HD) and use the Internet.Often, you don't have to look too far to find good investments you will be comfortable owning.
Rule Breaker: Finally, a revealing question that David Gardner has been known to ask: What movie have you seen more times than any other? (And why?)
TMF Fuz: I love movies! I'm not sure which movie I have seen the most times, however. My best guess would be Planes, Trains, and Automobiles with John Candy and Steve Martin. Why? I usually laugh so hard that my stomach hurts.
I also like Quentin Tarantino films like Pulp Fiction, and True Romance. I'm not sure why I like them, I just do. I also try to see anything with Al Pacino and Robert De Niro. Great stuff!
Rule Breaker: Thank you, John, for the interview!
John can be found on the discussion boards of the companies that he covers, on other related boards, and in the Motley Fool Research area and discussion board. In Motley Fool Research, John writes quarterly analysis and reports, alongside periodic news updates when merited, on the four companies that he mentioned (Wal-Mart, EMC, Apple, and Oracle), with another company on the way soon.
To close, Celera (NYSE: CRA) announced that it sequenced over 1.1 billion base pairs of the mouse genome. So, how is Celera going to create extra value for customers compared to the competition? Check out the press release for a hint. Until tomorrow, Fool on!