If you’re looking to take your game to the next level, here’s an excellent habit to develop: Anytime you encounter a data point or statistic that tells you about the supposed quality of a given investment, quickly follow that up by asking the question, “Is there any countervailing force that will offset this?”
I’ll give an example. If you read analyst reports about Altria (which was called Philip Morris up until about five years ago) anytime between 1983 and now, you would have encountered this line dutifully added in the “risk” section of the analyst reports: Gross tobacco volume shipments in the United States are declining by about 3-4% annually.
This is a permanent structural change in the tobacco industry. It is a very real risk of tobacco investing, and the analysts are right to note it in investor presentations. Yet, relying on this fact to make an investment decision … Read the rest of this article!