How do professional asset managers choose the stocks on the stock market in which they invest? What criteria help identify a quality company? How to distinguish a company with sustainable growth from an overvalued or struggling stock?
In this edition of Parole d’Expert from Café de la Bourse, Clémence Tanguy interviews Nicolas Domont, managing partner at OptiGestion. Background, analytical methodology, the importance of growth, valuation, investor psychology, and the impact of AI on the markets: he revisits the main principles that guide his daily investment decisions.
The occasion also to better understand how to invest in stocks with a rational and long-term approach.
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Nicolas Domont, how does one become a manager at an asset management company?
I have always wanted to work in finance since my secondary school days. I attended a business school with a finance specialization before starting my career in private equity as an analyst and then a business development officer.
I then joined OptiGestion over eight years ago as an assistant fund manager for UCITS funds before gradually progressing to the role of fund manager. Today, I also have a private wealth management activity, with a client base primarily made up of individuals and families.
How do you analyze a stock in practice?
The first thing we look at is not the stock itself but the market in which the company operates. We look for sectors capable of creating growth and value over several years.
Once this universe is identified, we analyze the companies that outperform their market: quality of the business model, ability to maintain growth, future value creation and the coherence of valuation.
We also attach a great importance to return on invested capital, which measures a company’s ability to monetize its investments.
How to know if a stock is priced correctly?
The P/E ratio remains a useful indicator but it must always be related to the company’s growth. A company that displays strong growth can justify a higher valuation.
The market operates by supply and demand flows: if investors are willing to pay more for a company, it is generally because they anticipate significant growth in the years to come.
Conversely, some valuations can become irrational when expectations become too speculative.
Does macroeconomics influence your investments?
Yes, inevitably. The key interest rates have a direct impact on the cost of money and thus on investors’ risk-taking.
When rates were near zero, markets more readily accepted high valuations. Today, with higher rates, investors become more selective.
But it is also worth remembering that in the stock market, we invest mainly in companies. Even in a challenging macroeconomic environment, some firms continue to show strong growth.
How do you analyze today a stock like Alphabet?
Alphabet is part of the major players in the AI revolution. What interests us today is to understand how this technology will generate new growth drivers.
The market is particularly watching the massive investments in data centers and AI infrastructures. The real question is whether these expenditures will eventually yield sufficient profitability.
Today, Alphabet is starting to show early positive returns, notably in advertising thanks to AI. This is what makes the case interesting despite a valuation that is already high.
What is a red flag for you?
A company operating in a declining market and losing market share is a red flag.
When a company can no longer innovate or sustain its growth, this often means that its business model is starting to falter.
We try to avoid companies that are unable to reinvent themselves.
Investing in the stock market: what advice would you give to a private investor?
The hardest part in the stock market remains managing emotions. Many investors want to sell in moments of panic whereas these are often the times when markets offer the best opportunities.
It is almost impossible to time the market perfectly. You should mainly invest with a long-term horizon and avoid making emotional decisions during periods of high volatility.
Missing the best market days can seriously penalize performance over several years. That is why it is often better to stay invested.
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