🎙 In part 4, the final part of this series, we’re looking at non-financial factors that can make or break a stock market investment. When picking stocks, it’s important to consider not only the company leadership team, but also the political and economic factors where the company operates. These factors will impact the returns you can earn on your investment. 🤔
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Hey there, friends! And welcome back to Girl on FIRE, the financial independence podcast for independent women.
My name is Priya, I’m a Chartered Accountant, an analyst and the creator of Paper Money Co.
I’m also a fierce financial feminist and the host of this podcast. I believe that a woman who is in control of her money, is in control of her life.
On this weeks’ episode, we’re finishing up our 4-part series looking at how to pick individual stocks to invest in.
Over the last few weeks, we’ve looked at what financial statements are, where they come from and what they can tell you about a company’s financial performance.
We’ve also looked at a variety of ratios to help you understand those statements and evaluate investment options.
This week, we’re looking at some of the non-financial factors that can make or break an investment.
But before we get started, I want to remind you to head to my website — papermoneyco.com/startinvesting to download your free copy of my Investing Starter guide
It’s totally free, you just need to enter in your email address and I’ll send it straight to your inbox.
It gives you a step by step plan to follow to get your finances ready to start investing, including working with a budget, building an emergency fund and paying off debt.
The sooner you can get your foundation set and get those good money management practices in place, the sooner you can start investing and building your wealth.
If you’re really serious about learning to master your money, then it’s the perfect guide for you, and I’d hate for you to miss out on it.
As always, Girl on FIRE is about learning, so whip out your favourite notebook or journal and get ready to take some notes.
If you’re not into writing things out by hand, you can always find the transcript on my website — papermoneyco.com/gof35.
Okay, let’s dive in!
Governance & leadership
First up we have company governance and leadership. This is things like the board of directors and the executive management team, so the CEO, CFO and COO.
Ideally all these people will be properly qualified to run the companies that they’re in charge of.
You also want them to be trustworthy. No corruption, not taking bribes or kickbacks. And actually have a stellar career that’s based on merit.
For example, imagine if Apple changes CEO. And that person was previously the CEO of a shoe manufacturing company.
What does the shoe CEO know about technology an innovation? And not just any technology and innovation — the Apple standard of technology and innovation.
Or what if the new CEO is someone who’s got a bit of a shady past. They’ve been involved in scandals where they were issuing contracts to their friends instead of the best suppliers on the market?
This is why leadership changes are often a big deal for listed companies. You want the right person to be guiding the ship off into the investor sunset.
They need to know what they’re doing and you need to be able to trust them to act in the investors’ best interests.
So, how do you find out this kind of information about the board and executive management teams? Honestly, Google it.
Most companies would have this type of information listed on their website under the investors centre section.
Next, you want to also look at where this company you’re considering investing in sits within it’s own industry. And how that industry operates.
So, for example Apple is a huge innovator in their industry. And it’s hard for new competitors to pop up and really give them a run for their money.
This means that their business model is a little bit more protected. Which also means they’re less likely to lose their crown to a competitor.
Because when that happens, even if it’s just speculation, it can make Apple appear less valuable to investors.
Let’s look at another example. What about a mining company? They might not be doing a lot of innovating or research and development.
But the costs for a new competitor to come on the scene are huge. They need mining rights, tons of equipment, geologists and engineers.
It’s not so easy for a new company to topple the Queen in the mining industry either, because the barriers to entry for new companies is pretty high.
So, if Queen Mining Co is the best mining company around, it’s going to be hard to beat them.
Now, on the other hand, let’s say you have a company which operates a chain of bookstores. They’re called Bookerly and they’re the top bookstore retail chain in the industry.
There’s not a lot of innovation and research that can set Bookerly apart from it’s competitors.
Not only that, but it’s very easy for a new bookstore retail chain company to enter the market and knock Bookerly off it’s top spot.
So, let’s say this new company is called BookBook. BookBook only needs to secure retail leases and store fitouts, hire a few employees and make deals with publishers for books to sell.
They don’t need tons of complex machinery like the mining company. They don’t need to be on the bleeding edge of tech innovation like Apple does.
It’s a lot easier for a new company like BookBook to break through the bookstore retail chain industry.
And that means every newcomer to the party is more of a threat to the existing companies in the industry like Bookerly.
So, the company you’re thinking of investing in might be the best in the industry now. But how easy is it for that company to get knocked off the top spot?
How vulnerable are they to new competitors? And is the industry even ripe for new companies to come along anyway?
If we return to our Bookerly example — everyone knows print media is dying a slow and painful death. Audiobooks and ebooks are gaining more and more popularity every year.
Is the print media industry going to survive as it is long term? Are they starting to pivot their business models to accommodate those changes in consumer behaviour?
FIRE & investment calculator spreadsheet
Before we move on, I want to ask my Girls on FIRE for a favour. If you’ve listened this far into the episode then you’re probably enjoying it, right?
So, here’s what I’d like you to do next. Pause this episode for a few seconds and head on over to papermoneyco.com/podcastreview.
I want you to leave a rating and review for Girl on FIRE because it helps me provide better content based on what you’re enjoying the most.
It helps other women out in the internet wilderness come and find us as well.
And it’s also a great way to support this show for free, and for that I’d love to send you a little something to say thank you.
So, once you’ve done that, take a screenshot of your submitted review and email it to me at firstname.lastname@example.org.
If you do that, I’ll send you a copy of my FIRE and investment calculator. Which, if I do say so myself, is pretty damn amazing.
It’s how I plan for my early retirement and my wealth. It shows me how my wealth is going to grow, when I can retire and how long my money will last.
And it also has a separate tab that takes Australia’s superannuation into account as well.
And you can use it to analyse companies and different investment options when you’re picking stocks too which just so happens to be what we are talking about in this very same episode.
I’ve never actually seen anything like it before, so it’s pretty special. And I’m currently not offering that spreadsheet anywhere else except for Camp FIRE members.
Not in my shop, not to my email list — it’s a ghost. So, this is kind of a money-can’t-buy type deal.
The only way to get your hot little hands on that spreadsheet is by submitting a rating and a review, taking a screenshot and emailing it to me.
That URL again is papermoneyco.com/podcastreview. I’ve made it nice and easy for you.
So, go hit pause and do that right now. It’s okay, I’ll wait.
Okay, that concludes my little ad-break, so let’s get back to it.
Economic and political factors
And the last category of factors we need to consider are economic and political factors.
Look at where this company operates. And not just whether they’re an American company or an Australian company or a French company.
I’m not talking about where they were born, I’m talking about where they live. Where they operate.
You could have an Australian company that owns and operates mines in South America. Or maybe they sell all the stuff they extract to China.
Or an American retail company that has a store network across Europe and Asia. Or a German car company that only sells it’s cars in Europe.
Now, you need to consider all the economic and political factors in all those places where companies do business.
Example: Mining Company
Let’s pretend Queen Mining Co is an Australian mining company that has iron ore mines in Australia and copper mines in Argentina. And they sell most of their stuff to China.
In all those places — Australia, Argentina and China — we need to consider what’s going on in the economy and what’s going on politically.
For example, Argentina might implement policies where mining leases and mineral rights are given to local companies first. And foreign companies have to pay double in order to mine that land.
That could mean Queen Mining Co might not be able to afford to operate mines in Argentina anymore.
Or what if China starts imposing tariffs on minerals and commodities from foreign companies.
Queen Mining Co won’t be able to compete with local mining companies because those tariffs drive up the price of their commodities.
Maybe interest rates in Australia are really low and Queen Mining Co can borrow more money to start new mines in Australia.
Or maybe inflation in Argentina is really high and that drives up wages. And all of a sudden, Queen Mining Co can’t afford to pay it’s employees in Argentina who operate the mines.
Example: International Retailer
Let’s look at another example — the American clothing retailer with an international store network.
Maybe consumer sentiment in Europe is really low. And people are losing their jobs. They have less disposable income, they don’t feel so great about the future.
Consumer sentiment dips. And they stop going shopping because they need to save money.
But on the other hand, the Asian economies are booming. People have more wealth than ever before and they want to spend.
You’ll see sales in Europe go down just as sales in Asia go up. And you’ll see that what happens internationally can impact a company’s performance.
And that in turn impacts the share price. It impacts investor sentiment. All these things happening around the world impact your wealth.
So, there isn’t a right or wrong answer as to what you should look for in terms of economic and political factors.
Political stability and a government that values foreign investment and trade is a good sign. But growing economies often provide larger returns than more established ones.
And a lot of the time, that kind of development does come with some political upheaval.
So, the point is that you need to do your research. You need to understand what’s going on and most importantly, what the risks are.
Next weeks’ episode
And that’s all I have for you Girls on FIRE today! And that brings us to the end of this 4-part series.
My challenge for you this week is to pick a big listed company and do some research. See where they do business.
And then I want you to research those places and see what’s going on in their economies and their political environment. Do you think that makes this company more or less risky?
On next weeks’ episode we’re doing something a little bit different. But it’s actually a super important episode — something that we really need to talk about.
It’s going to be a super interesting episode so you’re definitely not going to want to miss it.