One of the great things about equity investing is that you can be extremely fussy.
You don’t need to buy hundreds of stocks. A dozen or so can give you solid diversification, provided they’re not all marching to the same beat. And you’ve got literally thousands of candidates to choose from. Tens of thousands, if you’re happy to look offshore.
But if you’re too fussy, you’ll never buy anything. And if you do, you won’t hold it for long. Perfect, as they say, is the enemy of the good.
So the trick is to be picky, without being precious. Selective, but also practical.
Catapult Sports (ASX:CAT) has gone up tenfold in the past 30 months. Yet back then, anyone buying was overlooking a business that was bloated, burning cash and regularly failing to deliver on promises.
ResMed (ASX:RMD) has doubled in just two years. But investors had to contend with a serious existential threat, namely the risk that weight-loss drugs like Ozempic might make their core product redundant.
Energy One (ASX:EOL) has tripled in the past year alone. But last October it was dealing with shrinking margins, rising debt and a nosebleed valuation of 98 times earnings.
Codan (ASX:CDA) is up almost 7x since late 2022, despite a 33 percent drop in net profit at the time and major issues with key distributors.
And that’s just a quick skim of the Strawman leaderboards.
The point is, no company is perfect. And the ones that look close to perfect are usually priced to reflect that. So even if they deliver, there may be little upside for you.
In fact, you could argue that a few blemishes are almost a prerequisite for a good bargain. It’s precisely because something looks a bit rough that you get a shot at outsized returns.
Of course, that doesn’t mean you should run out and scoop up every stock weighed down by bad headlines. A lot of the time, the market’s pessimism is completely justified. But you do need to recognise that imperfection doesn’t mean uninvestable.
Sometimes, the warts are overstated. Sometimes, they’re temporary. And sometimes, they’re more than offset by strengths elsewhere.
Buying into that kind of situation isn’t easy. And holding on while you wait for the business to prove itself, and for the market to catch up, is even harder. It takes time. And in the meantime, the share price can get worse before it gets better.
That’s the paradox. The best opportunities often look the worst at first glance.
You simply won’t get a bargain unless there’s something others are worried about. The question is whether they’re right to worry — and whether you’ve got the patience to wait for the story to turn.
This game isn’t about perfection. It’s about perspective, judgment, and a stomach for short-term discomfort.
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