An investment analyst explains how to break into the stock market

By Lori Youmshajekian  Wednesday, 10 April 2019  @Business School

There is no magic formula when it comes to investing, says a UNSW Business School alumnus.

“There are principles that you learn over time, which can be applied again and again to different situations,” Antipodes Partners investment analyst Michael Li says.

“The way I see investing is that there is a company behind every stock, and so you should not treat your stocks like a lottery ticket.”

Mr Li says one of his ‘humbling’ earlier investments was an online comparison service for insurance and utilities.

“The mistake was thinking the stock could not go any lower, but it was like catching a falling knife,” he says. “I did not realise how unpredictable the business’s profits were. I was also attracted by the stock trading at a 52-week low even though it was still trading at a price that was about 27-times net income.”

When the company’s CEO resigned in April 2018, Mr Li threw in the towel and sold the stock at a loss.

“I didn’t go through due diligence … the stock market was a very painful but humbling teacher in that instance,” he says. “It was a wake-up call to pick stocks more selectively with a rigorous investment process – this worked later for me in 2018 with several darling stocks.”

According to Mr Li, the next big thing is right in front of our eyes – the internet.

'The stock market was a very painful but humbling teacher in that instance. It was a wake-up call.'

“A compelling time series chart from Deloitte showed internet activity growing exponentially from 1993 to 2012 – you wouldn’t have even noticed the global financial crisis in 2008,” the UNSW alumnus says.

“If you think about who is going to provide the data infrastructure for the continual growth in demand for data usage, you would think about the developers of the data centres. Moreover, people will require more cloud services to fulfil the demands of data traffic.”

For stock market first-timers, Mr Li says, being willing and able to invest is crucial.

“Willingness is about whether you can stomach the volatility in the stock market – determining your risk tolerance,” he says. “Ability is about whether you have enough money to start investing appropriately. The ASX requires a minimum of $500 for a trade.”

He also cautions would-be investors to be aware of their psychological biases when making decisions.

“It could be authority bias, social proofing bias, confirmation bias … no human is free from it but being aware is better than being ignorant,” Mr Li says.

“Do the homework … and be able to defend your opinion for each stock.

“It would be appropriate to seek professional advice, too, if there are any uncertainties.”

Mr Li says students trying to make sense of the industry should read widely and try to understand their passion.

“There have been so many books, interviews and news pieces from different investors who have all taught me one thing or another about investing and shaped me to the investor I am today.

“Get involved in opportunities at UNSW that have an emphasis on investment management – societies like Investing For Charity and Australian Students Asset Management run programs that give you a taste of stock picking.

“If you can do stock pitch competitions at UNSW, that is a great avenue to connect with fund managers, if they are judging.”

Mr Li also keeps a blog documenting his investing journey, The Ordinary Investor.

an-investment-analyst-explains-how-to-break-into-the-stock-market