Research. Research. Research. In the information age, you can find almost anything if you look hard enough. The harder question is how we interpret that information to make sense of it.
Peter Lynch wrote an excellent book called How to One Up Wall Street. Highly recommend it if you're a retail investor. In it, he comments that the retail investor should buy companies in sectors they deeply understand.
If you're a dentist, you're probably an expert on dental supplies and the healthcare industry. If that's the case, you already have the inside lane when it comes to expert knowledge on which companies may, or may not, be worth your time. The products we buy and use ourselves are almost always the best kind of market research out there.
Most of my insights are a result of deductive reasoning in geopolitics. Recent news highlights President Trump discussing pivoting away from China for rare earth minerals, announcing funding and incentives to achieve this.
Most likely course of action? Mining stocks. Am I an expert in rare earth minerals? No. Do I know that there's about to be a lot of digging as a result of this? More than likely, yes. Who makes the equipment? For argument's sake, let's use Caterpillar.
Caterpillar Inc. operates in construction and mining equipment manufacturing sectors. I've had this on my watch list for several months, and only two months ago, I assessed it as overvalued. It's a highly profitable, stable, and long established company experiencing ongoing growth thanks to an expansion in mining efforts among others. The problem is, everyone else thinks this too, hence the share price.
What do I like? Record 2025 sales and revenues of $67.6 billion, up 4%. A record Q4 of $19.1 billion, up 18%. A Power and Energy segment boom from AI data centre electricity demand, record backlog, strong dealer inventory and end user sales, and overall industrial momentum.
What don't I like? Using several valuation metrics, it is still overvalued. However, if general market consensus remains negative, war in Iran, there is a very real possibility the share price will continue to decline despite the underlying fundamentals remaining strong. There is a divergence point where you might be able to pick up a bargain.
Company value and human behaviour don't always rise and fall together. I like opportunities where they've temporarily disconnected. Keeping in mind, I don't have a crystal ball for the future. Nobody does. As an investor, it is your job to confirm current value and weigh up the future risks and rewards using the information at hand right now.
Financial Disclaimer. This content is general in nature and has been prepared without taking into account your personal objectives, financial situation, or needs. It does not constitute financial product advice under the Corporations Act 2001 (Cth). Before acting on any information contained in this post, you should consider whether it is appropriate for your circumstances and, if necessary, seek independent financial advice. References to specific companies, markets, prediction tools, or investment strategies are for informational and educational purposes only and do not constitute a recommendation to buy, hold, or sell any financial product. Past events and probabilistic frameworks discussed are not reliable indicators of future performance.