How can investors foresee the future?

One question that I often receive is, as Jitta shows data from only the past to the present, how can we be sure that the stock we invested in will still have a good Jitta Score and Jitta Line in the future, and enable us to build our wealth as planned or not?

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One question that I often receive is, as Jitta shows data from only the past to the present, how can we be sure that the stock we invested in will still have a good Jitta Score and Jitta Line in the future, and enable us to build our wealth as planned or not?

The answer is, in investment, nobody can be a hundred percent sure about what will happen in the future, not even world-class investors. What we can do is just analyze the information we have from past to present, and invest in assets that are safe and will likely earn the highest profits in the future.

Therefore, the main things we should do, as investors, are to reduce risk and keep tabs on the future.

1. Reducing risk

Reducing risk means choosing to invest only in companies that have constantly performed well financially for a long time, and in companies that are highly competitive. Because these companies have proven to survive in both good and bad companies for countless times, and were able to increase their profits and share price.

Most of the successful investors will always look at the chance of making a loss before making profits. Take Warren Buffett, for example. He stated that if there is a 99% chance of making a hundred percent profit, and a 1% chance of going completely broke, he would never invest in this situation, because it is simply not worth the risk.

For Jitta, selecting stocks (in reasonable prices) of companies with Jitta Scores of over 5 for many years shows that the chances of these companies facing crises that will make them lose profits (within 3-5 years) is very small. This ensures the safety of our investment money.

We also have to spread our risk as well, because putting 100% of our capital in one stock, no matter how confident we are in it, is too risky because there may be unexpected events in the future. Warren Buffetts’s highest holding in one single stock is American Express at 40% of his port, in which he was already extremely confident.

2. Keeping tabs

2) Keeping tabs on the future means to keep ourselves updated on the company’s’ operations, see whether they are doing as well as we hope or not. Because, as mentioned earlier in #1, despite how well a company is performing, unexpected events can happen; therefore a constant monitor on the company’s competitiveness and increasing value will maintain our confidence (like what we felt when we first invested) that our investments are still safe and will likely grow bigger in the future.

This is done by reading financial statements every trimester, to track whether the company is able to reach the profit level we targeted, and whether it still maintains a good financial status. If there is anything out of the ordinary, we must find the root cause so that we can make an informed decision on whether to buy more, sell, or keep holding our investment.

In Jitta’s case, this is pressing the Follow button on the stock that we invested in (or the one we’re interested in). We can then receive updates every three months, when the financial statements are released, on the new Jitta Score and Jitta Line, so that they match with the company’s present condition. This will help us make our decision on whether to buy, sell, or hold, just as any investor would do.

From my experience, the more effective we are at doing #1, the lesser time it will take us to complete the tasks in #2.

In summary, reducing risk and keeping tabs on the future can be compared to the crossing a road. First, we have to make sure that we are crossing at the zebra crossing, at an intersection with traffic lights, and look left and right before crossing… because if we’re not careful, there might be a driver that ignored the red light and end up hitting us anyway.

Author: Jitta

Jitta simplifies financial analysis for value investors and financial advisors alike. Our stock-analysis platform offers actionable advice to help them make better investment decisions and generate higher returns based on a simple principle: “Buy a wonderful company at a fair price.” And we do that by creating Jitta Ranking, our proprietary algorithm that ranks stocks based on their profit potential. Returns generated by Jitta Ranking since 2009 has outpaced that produced by the S&P500 index by a large margin. Jitta’s technology processes information like a human mind, assessing complicated data and digesting it into an easy-to-use and intuitive format. Its key features include Jitta Score, an indicator of a wonderful company; Jitta Line, an indicator of a company's fair price; financial statements-made-simple Jitta FactSheet; Jitta Playlist, an intelligent screener and backtest system in one; and Jitta Portfolio, a smarter investment-tracking mechanism.

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