What I Learned After 8 Years Working as an Equity Analyst
Many mistakes were made along the way, and there’s so much I’ve learned...
Hi, Investor! 👋
I’m Jimmy, and welcome to another edition of our newsletter. Today, I’m sharing the most valuable lessons from my eight years as an equity analyst - insights gained from studying businesses, navigating market cycles, and refining an investment framework focused on long-term returns.
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For those who are new here or might not know, I spent eight years working as an equity analyst for mutual funds, diving deep into markets, companies, and investment strategies.
It was a period of late nights filled with numbers, spreadsheets, and crafting theses, alongside the emotional highs and lows that the market inevitably brings.
But those years also came with hard lessons. Mistakes - some painful - were unavoidable, but they became the foundation of my growth.
One thing I learned from my father is that it’s better to learn from others’ mistakes than to make them all yourself. I’m here to share some of the five lessons I picked up during those years, and I hope they prove useful in your own journey as an investor.
1. The Market Doesn’t Care About Your Target Price
Analysts love precision. We build detailed models, tweak assumptions, and proudly arrive at a target price that seems to unlock a company’s “true value.” But here’s the cold truth: the market doesn’t care about your calculations.
Valuation is important - it anchors your thinking - but it’s just one piece of the puzzle. Markets move on sentiment, macro shifts, and catalysts you can’t predict. Betting everything on your target price is a fast track to frustration.
This is where humility becomes crucial. As Paul Tudor Jones famously said:
“Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.”
Let’s use BBG consensus and the example of Dollar General ($DG) as a case in point. Notice how analysts kept adjusting their targets, yet the stock kept falling further—never converging toward the target. Always stay humble and question your assumptions. Don’t get anchored.
The market rewards adaptability, not arrogance. Stay humble, stay curious, and never stop questioning your assumptions.
2. Invest in Great Companies and Let Compounding Work
Investing is a long game, and compounding is your greatest ally - but only if you pick the right companies, at the right prices. Great companies generate returns on invested capital (ROIC) that exceed their cost of capital (WACC). This means they’re not just surviving - they’re creating value with every dollar they deploy.
Even better is when these companies can reinvest at those high rates. This is the golden scenario: a business that compounds value year after year. These are the companies you want to hold for the long term.
On the flip side, investing in companies with low or negative ROIC is like watching time work against you. Every day, they destroy value, and the longer you hold, the worse your position becomes. Hope is not a strategy - avoid these value traps and focus on businesses that make time your ally.
Let me share a personal story to illustrate this point.
Back when I was an equity research intern with only 4-5 months of experience, I thought I had it all figured out. Like many young market participants, I was overly confident, having only experienced a bull market where my personal portfolio seemed to climb endlessly.
One day, I recommended a retail company that was trading at a negative P/E and an EV/EBITDA of 30x. The company was heavily leveraged, focused on consolidation through M&As, and a darling of the financial markets at the time. I did my research, felt confident, and recommended a buy. The company’s ROIC was far below its cost of capital, and it was losing money. The rationale? Integration of acquisitions would eventually pay off, and synergies would drive profitability. I believed it and we [the mutual fund] bought the stock at $50/share.
Seven years later, the company was still destroying value with no signs of improvement. The stock had dropped over 95%, hitting $8/share after several reverse splits.
That experience humbled me early in my career and shaped me into a far more cautious and disciplined analyst.
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3. Don’t Get Distracted by the “Woman in the Red Dress”
If you’ve watched The Matrix, you’ll remember the scene where Neo is mesmerized by a woman in a red dress, only to discover she’s a distraction designed to throw him off his mission. Investing is full of similar traps.
Every year, there will be a stock that soars 300%, or a hyped sector that everyone can’t stop talking about. By the time you notice it, the opportunity is usually gone. Chasing these “hot” stocks rarely leads to lasting success. They’re flashy, tempting, and often end in regret.
Instead, stick to your process. Focus on fundamentals, long-term potential, and what you know best. Avoid distractions—they’re just noise pulling you away from your goals.
4. Average Thinking Leads to Average Returns
Want market-beating returns? Then you can’t think like the average investor. Howard Marks calls this second-level thinking: the ability to see beyond surface-level conclusions.
You got to be a contrarian. Being contrarian means resisting the herd mentality and thinking independently. In investing, it’s about questioning the market consensus and making decisions based on sound reasoning rather than following trends. Herd behavior often leads to overreactions - bubbles in times of optimism and sell-offs in moments of fear. By going against the crowd at the right moments, contrarians can uncover undervalued opportunities or avoid costly mistakes.
Being contrarian isn’t easy. It requires conviction, patience, and a willingness to look wrong in the short term. But the rewards are worth it. Alpha - the ability to outperform - comes from having unique insights and the courage to act on them.
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5. Stick to Your Circle of Competence
The best investors in the world stick to what they know. Renowned asset managers assign analysts to sectors they deeply understand, like financials or consumer goods. Why should individual investors be any different?
I’ve learned this lesson the hard way. There are sectors I simply don’t understand - like biotech or semiconductors. Trying to invest in them would be gambling, not informed decision-making. Instead, I focus on industries where I have deep knowledge and can develop a real edge.
The temptation to chase “hot” opportunities outside your circle of competence is strong, but it’s a mistake. There are thousands of listed companies around the world. Chances are, you can find plenty of opportunities in areas where you already have expertise.
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Final Thoughts
Investing is both an art and a science. It’s about understanding numbers, but also managing emotions, biases, and distractions. After eight years in the markets, these five lessons have shaped my approach:
The market is unpredictable; stay humble.
Invest in great companies and let compounding work for you.
Ignore the noise—distractions rarely lead to success.
Think differently; it’s the only way to beat the market.
Stick to what you know; your circle of competence is your edge.
The journey of an investor is a continuous learning process. The markets will test you, humble you, and surprise you. But if you stick to principles that stand the test of time, you’ll set yourself up for long-term success.
Here’s to making smarter decisions and growing with every lesson learned.
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think abt it: if you not invest in nvda, pltr when the stocks were only like $6, $10, now do you carry a heavy burden for missing the opportunity? this is also called the risk of missing opportunity.
Dollar general @ 19 Apr 2025
P/E (Core Intrinsic)
= 15.9÷3.356
= 4.7377830751