The Road Less Taken

Is it Worth the Time to Study Bad Companies?

It is always easier to read and write about companies that I would buy. Passing on a company is easy and is recommended by most people. I could skip a lot of the companies I come across and move on to a better opportunity, but I am learning that this should not always be the case.

It is hard work to study a company you have no interest in. I would say it takes twice the mental effort because your brain just screams at you to stop wasting time and move on.

You lose concentration quicker because you are reading something you are not interested in.

You feel like you are not achieving anything.

But don’t jump to conclusions. You have achieved something. There is a reason why the cliché “never give up” and “fight to the end” exists. It makes you stronger.

Bad Companies are Good for You

The more you fight your nature from taking the easy route, the more analytical and objective you become in your research.

This is a direct battle against a behavior you may never have thought about.

It literally takes me twice as long to get through and understand an annual report of a bad company compared to a company I am interested in.

Here are a few points that I guarantee will result from analyzing bad companies

  • You start to focus on risk more than anything
  • You are no longer bound to confirmation bias
  • You become objective which helps you identify the important information from the noise
  • You start to follow a process such as an investing checklist. Here’s another stock selection checklist.
  • Practice makes perfect

Trust me when I say I don’t want to spend hours writing up an analysis of bad companies such as OCC, MPAC and IGOI. However, I have discovered new risks that I would not have regarded had I focused purely on companies that met my criteria.

I’m bad at remembering things, but I read in some book that the secret to success is fairly consistent. Study the behavior and characteristics of successful people and they share many commonalities. However, the recipe for disaster is unique and as diverse as it can possibly get.

You have no doubt spent years reading about good companies. You have to start reading about bad companies to appreciate the good ones.

This is why I will continue to post stock analyses of companies I would never buy.

Two roads diverged in a wood, and I,
I took the one less traveled by,
And that has made all the difference. – Robert Frost

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