Successful Investors Need Common Sense, Not MBAs

Sometimes, the numbers aren’t worth very much. Over the years, I’ve been very fortunate to have had many experiences dealing with what I call “financial types.”

There are a lot of people crunching numbers in the investment business and a lot of research analysts making big bucks rating stocks as best they can. These kinds of jobs are tough to get and you usually have to be pretty smart and have a lot of letters behind your name in order to get them.

Yet, with all the qualifications and business training, a lot of people in the investment business aren’t very good at picking stocks. A lot of financial types aren’t very good at understanding business either.

In the investment world, prices (or valuations) are always relative. This is to say that there never is one right price for a stock or any security for that matter. A fast growing company can be expensive or cheaply priced on the stock market. In the world of private equity (investors who buy and sell privately held companies) valuations are typically much less than publicly traded stocks.

So, in a sense, the numbers themselves aren’t worth very much. They are only useful as a guide in one snapshot.

One thing the numbers never do is predict if a stock will do well on the market. This is why I don’t listen much to overpaid Street analysts. You can crunch all the numbers over and over again, but this doesn’t help you become a good investor.

Most often, common sense is a better prerequisite than an MBA or CFA in the investment business. Not if you want a job at an investment bank, but if you want to be a successful investor.

Consider American Oriental Bioengineering (NYSE/AOB). This company sells plant-based pharmaceuticals and nutraceuticals in China. The company and the stock have a track record of success. The company’s target market is growing, as is its financial position. China consumers love plant-based products. China consumers are spending more money on these kind of products.

The entire opportunity just makes sense. AOB just offers the right “package.” It doesn’t take a PhD in mathematics to understand this opportunity. In this case, the only number that matters is the stock price.