How to understand an industry ?

Q & ACategory: QuestionsHow to understand an industry ?
Chan Chong Mun asked 5 years ago

Hi Peter and, 
I wanna ask how do you usually search about an industry ? Do you read financial statements of few companies or you got other ways to let you have better understanding about the industry ?

2 Answers
Peter Lim Staff answered 5 years ago

I rarely search for any particular industry. I do a screener, and then read these companies from the best value and then to the next. If the company is very well managed and very profitable, i would read further what makes it so, i.e. what is the company’s competitive edge over the rest. What does it do differently to its competitors.
Reading the Chairman / CEO’s letters helps.

NICHOLAS OH answered 5 years ago

This is what I normally do

  1. Look back through past annual reports that cover at least a full business cycle. Zoom in on the bad years to see what caused it and determine where the company is in the business cycle currently
  2. Study competitors annual reports and valuation. See what the competitors management say about the business environment. Also check and see if their margins are too good to be true compared to competitors. If you dont understand the reason, there is a chance of fraud so you have to look further.
  3. Look at analyst reports (past or present) if available mainly for the qualitative info (not target price).