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Section Summary - Three
Course Section 3 - Lesson 7
Generating investment ideas and thoroughly researching those ideas is an essential piece of ensuring that businesses that make it into your portfolio are situated on solid ground.
In this section, we walked through 4 strategies to produce investment ideas for companies you and those around you believe in. Starting from the perspective of "This is a great company whose products I love." is one of the best tools that individual investors have to generate unique insights in their portfolio and produce market-beating returns.
With ideas in hand, we then walked through actionable steps that you can take to develop an understanding of how those businesses operate, what opportunities lie ahead, and what risks you need to be on the lookout for. This initial company review helps to understand the qualitative nature of the company.
By building an understanding of the company, we are then prepared to look deeper into the competitive landscape that our target company operates within. We look at competitors to understand what growth and profit margins industry participants should expect on average. And by defining the close competitors of our target company, we can use this comparison group to benchmark how well our target performs.
Finally, we learned to dig into the raw financial statements that public companies make available for all to see. This information allows us to refine our expectations for growth and profit potential for the companies we seek to invest in. Further, we then utilize financial ratios as a tool to make this analysis more efficient.
The work that we've done in section 3 helps us to identify great companies. In the next section, we're going to take that a step further and validate whether or not those companies are priced attractively so that we might initiate an investment that will outperform the market as a whole.