What Sparks a Great Investment Idea? (Part I)

What Is an Investment Idea?

It isn’t easy to beat the market, and over time, most managers don’t. To outperform in the long run, an investor must find a market inefficiency that they can exploit with a degree of consistency (a market inefficiency means that a security is not accurately priced). For example, the inefficiency that our Global Growth, Non-U.S. Growth, and Emerging Markets strategies exploit is that markets often don’t recognize situations that are about to improve, and then are slow to recognize the full potential of the improvement. In our idea generation process, we search the world for improving situations that will lead to earnings acceleration but that have not yet been fully reflected in consensus market estimates.

Where Do Ideas Come From?

While we are not theoretical physicists, Einstein makes the point that creativity and an open mind are important to coming up with fresh ideas about the world around us. The world and its markets are awash with conventional wisdom, biases, and aversion to risk and uncertainty. Having followed our investment discipline for decades, we’ve developed strong conviction around the activities and ways of thinking that yield fresh, clear-eyed investment insights.

Deep Industry Knowledge

A deep understanding of the dynamics of an industry or region provides a critical foundation for seeing future trends and separating the wheat from the chaff when it comes to market “consensus.” We select and assign our analysts based on such knowledge, and then provide them with all of the resources they need, whether it be data, conferences, travel, outside analyses, or time for independent research, to continuously improve and update their subject matter expertise.

Our portfolio managers, experienced analysts themselves, add another level of insight and perspective. For example, our in-depth knowledge of the blood plasma industry enabled us to understand before many others the implications of an important acquisition of a competitor, which reduced costs while increasing pricing power for a major global player in this industry.

We’ve developed strong conviction around the activities and ways of thinking that yield fresh, clear-eyed investment insights. Learn more about our global and non-U.S. strategies: Individual Investors | U.S. Investment Professionals

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International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks. 

The opinions expressed are those of our investment professionals, and are no guarantee of the future performance of any American Century Investments® portfolio. This information is not intended to serve as investment advice; it is for educational purposes only.