The beginning of this post won’t match the title. Give me 4 minutes of your time, we’ll get there.1.0 The unpopular opinionAt least once a month, there’s someone new who says a version of the following sentence: You are good in finance, what should I invest in?Here’s my unpopular opinion: having a background in finance/accounting is a disadvantage when it comes to investing.Knowing how to read financial statements (or the entire annual report) can make it feel like we understand what is going on in a company, and based on that, we can estimate its value. However, being able to read the financial statements is not the same as understanding the business.Estimating the value is all about estimating the future performance of the company. It is not possible to do that without understanding the business and the industry it operates in. Yet, most finance professionals fall into that trap, which leads me to a quote of Mark Twain: It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.Extrapolating the historical performance into the future without understanding the business/industry is a great way to not beat the market.2.0 So, what to do?Ask questions until you have answers.Interested in Salesforce or HubSpot? Find people who are using Salesforce at a large company, understand what they like/dislike, but also what their opinion is of HubSpot. Do the same for someone who’s a long-time user of HubSpot. Do that with 10 professionals, and you’ll know more about Salesforce and HubSpot than 99% of investors in the two companies. You’ll understand how these platforms developed over time, the competitive advantages/disadvantages, and what they expect next. Then, and only then, will a finance background be useful.Interested in Intuit? Speak with 5 bookkeepers who run their practice on QuickBooks, then 5 who use Xero or Sage. You’ll hear about the interface change, the price increase, what annoyed them for a decade, how difficult it is to migrate, and a lot more.Interested in Adobe/Figma? Speak with designers and marketing professionals who have used these tools for a long time. Sometimes, there’s one in the department next to you. Speak with the ones who moved from Adobe to Figma, and the ones who haven’t.You not only understand the business this way, but also get insights (although, small sample size) into what’s going on right now and the upcoming features.It’s not just about software. It’s also applicable to boring businesses. When you hire an electrician, you can see if they’re using Milwaukee, Makita, or DeWalt tools. You can have a chat about their experience with the different brands, and at some point you’ll realize that even those tools have switching costs, as the professionals have multiple batteries for each tool. So when they make a decision to replace the tool, they are incentivized to get the same brand, to reuse the batteries.Some customers are using a product/service because leaving is painful. Others, because they love it. This won’t be visible in the income statement.Seems like a lot of work, what else can I do?Quality research takes time and, if done right, offers the best ROI.The conversations above don’t have to be 1-on-1. There are plenty of forums and social media platforms, such as Reddit, where these professionals already are! All you need to do is ask your questions and spark a debate.Don’t forget, everyone has access to the annual reports. If you want to be better, you also have to find alternative data sources that help you make better decisions.If you want to go broader, here’s a post on alternative data in investing that covers more ways to understand the company.Subscribe now3.0 Does this really work?You might have heard of this person by the name of Warren Buffett. There are rumors he’s done quite well in investing.He didn’t invest in Coca-Cola based on the financials, but based on the behavior he observed of the customers. The same is applicable to his investment in See’s Candies and Apple.There’s another one, called Peter Lynch. Same rumor there. Famous investments include McDonald’s and Dunkin’ Donuts, as well as L’Eggs pantyhose because his wife bought them at the supermarket.None of the companies are too complex to understand. But the loyalty won’t be visible in the income statement.Warren Buffett’s motto is “Know your circle of competence, and stick within it“. Great quote. I’d only add, aim to expand the circle of competence whenever possible. The best way to do so is by talking with those who are already competent in that area.So, back to the question at the beginning, “You are good in finance, what should I invest in?”The last time I was asked this question, it was coming from someone with 10+ years of experience in design. We spent the next 90 minutes talking about Figma and Adobe (of which I listened for about 80). In the remaining 10 minutes, I made the case that he’s more knowledgeable about certain public companies than I am and is one step closer to estimating the value.Subscribe now