Why Investing in Individual Stocks Makes Sense

At Peak Asset Management, we believe buying and owning individual stocks is a powerful tool for navigating the inevitable ups and downs of the stock market. Stocks represent ownership in real businesses with tangible assets and cash flows. Investing in a select group of leading companies allows us to stay grounded in what we own and why we own it, bringing clarity and discipline to weather volatile markets. 

The stock market is inherently volatile because it reflects human emotions—fear and greed often drive wild price swings. These fluctuations can distract you from pursuing your long-term goals.   

Investment trends come and go, which is why, as Boulder financial advisors, our discipline, tested over decades and through numerous market cycles, emphasizes business ownership as the cornerstone of stock investing. This approach helps us guide you toward building and maintaining your financial security. 

The Power of Knowing What You Own 

The public stock market offers an extraordinary opportunity: anyone can become an owner of some of the world’s best businesses. Buying a stock is more than purchasing a financial product—it’s an act of ownership. Direct ownership of individual companies allows for a deeper understanding of what you own, why you own it, and what might (eventually) prompt you to sell. 

Recent innovations, such as index funds, have made diversification easier. While we utilize these tools for specific purposes, our financial advisors in Boulder also believe there’s no substitute for knowing the details of your investments.  

A thoughtfully constructed portfolio of 20–25 leading companies allows for greater insight, better decision-making, and the emotional fortitude needed to stay the course in turbulent markets.  

When fear grips the market, knowing the intrinsic value of the companies you own can provide the confidence to hold steady—or even take advantage of discounted prices to invest further. 

Characteristics of a Great Stock Investment 

Our approach to buying individual stocks is not about “beating the market.” Instead, it’s a disciplined strategy designed to manage volatility and help our clients build enduring financial security. This philosophy aligns closely with what’s known as “quality investing,” which prioritizes resilience and consistent performance across market cycles.  

When selecting companies for our portfolios, we focus on four key attributes that define an excellent stock investment:  

• Competitive moats 

• Balance sheet strength 

• Strong cash flow generation 

• Secular growth tailwinds 

Competitive Moats 

A “competitive moat” refers to a business’s ability to sustain its advantage over competitors. Companies with strong moats can consistently deliver goods or services that are difficult to replicate, ensuring long-term profitability. Moats can arise from: 

• Scale advantages, where larger businesses benefit from economies of scale that drive down costs. 

• Network effects, where a product or service becomes more valuable as more people use it (e.g., payment platforms or social networks). 

• Switching costs, where customers face significant financial or logistical barriers to changing providers. 

Financially, competitive moats are reflected in metrics such as returns on invested capital (ROIC). Businesses with consistently high ROIC relative to their cost of capital generate “economic value added,” a hallmark of companies that maintain their competitive edge over time. These companies are better positioned to withstand competition, preserve margins, and deliver strong shareholder returns. 

Balance Sheet Strength 

A strong balance sheet ensures a company can weather economic downturns and seize opportunities when competitors struggle. This resilience becomes particularly valuable during recessions when businesses with limited debt and sufficient cash flow can expand market share or invest in growth while others are retrenching. 

Key financial metrics we evaluate include: 

• Debt-to-equity ratio: A lower ratio signals a company relies less on debt financing. 

• Interest coverage ratio Measures the company’s ability to cover interest payments with operating earnings, providing insight into financial stability. 

• Debt maturity schedule: Short-term obligations can strain cash flow, so we prioritize companies with well-structured, long-term debt schedules. 

Our team of Boulder investment advisors analyzes these factors through quarterly SEC filings, ensuring our portfolio companies have the financial flexibility to thrive through economic cycles. 

Strong Cash Flow Generation 

Consistent cash flow is a hallmark of a great business. Companies with strong cash flow generation demonstrate pricing power, operational efficiency, and the ability to reinvest in future growth. We look for businesses that can generate strong free cash flow, often called “owner’s earnings,” representing the cash available to reward shareholders after operating expenses and capital investments. 

Free cash flow provides optionality. Companies can reinvest in new projects, pay dividends, or repurchase shares—each a potential driver of shareholder value.  

We also prioritize management teams with a track record of smart capital allocation, ensuring that free cash flow is used effectively. 

Additionally, businesses with robust cash flows tend to exhibit profit margin stability through market cycles. This stability often indicates a company’s pricing power and the strength of its competitive position.  

Whether reinvesting in innovation, weathering downturns, or returning value to shareholders, strong cash flow equips companies to succeed in both good times and bad. 

Simplicity, Transparency, and Efficiency 

As experienced Boulder investment advisors, our goal is to simplify your financial life. Wall Street often promotes complex investment products, which can be overwhelming with unnecessary complexity and high fees.  

The latest fad on Wall Street is a push into private markets. As Jason Zweig recently wrote for the Wall Street Journal: “Hold on to your wallet. Wall Street is gearing up for a sales push that could enrich the middlemen and impoverish you.” 

By contrast, we believe that publicly traded stocks offer a straightforward, transparent, and efficient way to build wealth. 

Individual stock ownership allows us to know the details of what we own and why. Publicly traded companies are regulated entities that must regularly disclose their financial results and long-term business strategy. This transparency ensures we can routinely track the health and performance of our investments. Furthermore, commission-free trading and daily liquidity make publicly traded stocks one of the most efficient tools for building wealth over the long term. 

Conclusion 

There are many paths to successfully building wealth, but at Peak Asset Management, we’ve built a discipline around owning individual stocks. Stock ownership translates to business ownership, providing clarity, confidence, and the ability to navigate market cycles with resilience. By focusing on leading businesses with competitive moats, strong balance sheets, and robust cash flows, we help our clients achieve their long-term financial goals. 

To learn more about our approach to individual stock investments or if you’d like to review your existing portfolio with a member of our team, let’s connect.

Advisory Services offered through Peak Asset Management, LLC, an SEC-registered investment advisor. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This content is developed from sources believed to be providing accurate information and may have been developed and produced by a third party to provide information on a topic that may be of interest. This third party is not affiliated with Peak Asset Management.  It is not our intention to state or imply in any manner that past results are an indication of future performance. Copyright © 2025 Peak Asset Management