“The rich invest in time, the poor invest in money.”-Warren Buffett.
There are numerous investment options. In pertinent to stock investing, there are an array of Investment philosophies. Some popular investing principles are:
- Value Investing
- Fundamental Investing
- Growth Investing
- Technical Investing
For obvious reasons, I find none a good fit for me.
For a few years, I have tried technical Investing and failed badly (Check it out here). I have no competency, time and background to even start the first three. So, what is the best way for me to deploy my trivial capital?
If you listen to Warren Buffett, he recommends to buy a low-fee Index fund (similar to S&P 500) and hold it forever for retail investors like me. But, like every investor, I have the wish to do better than the benchmark index.
Well, nothing wrong in thinking so. But, is there really a way?
My barely a decade long self-learning and poor performance in stock (and a good one too) forced me to mold a philosophy suitable for me.
Big Ideas and Best Managers. I find the combination of these two, which I think is relatively easy to spot for my background, the best principle for my investment. However, they are not risk-free. Time and again, I overpay for that combination and regret it later.
This certainly is not a scientific method and is not suitable for all.
Big Idea – Online Advertising: Online advertising is just beginning. It has made splashed entry and is here to stay a very, very, very long time. Don’t bet against it! Managers – Sergey Brin and Larry Page
Big Idea – Social Networking: Facebook still have 4 + billion people to connect. People are more concerned and curious about others. It’s a psychological and addictive. Not to mention much useful. Manager – Mark Zuckerberg
Big Idea – E-Commerce: People will order cement from online and I am not kidding. E-Commerce is just beginning. Manager – Jeff Bezos, Jack Ma
Big Idea – Cloud-Computing – This is the future of the high-speed network. Majority of the world population will need a machine connecting to a server to do tasks. Also, can you imagine workers with a machine and no Microsoft Excel? No. Managers – Jeff Bezos, Larry Ellison, Bill Gates
Big Idea – Mobile Gadgets – I do not know what the iPhone 100 or Samsung 100 will look like, but there will certainly be something radiating in your pocket. Manager – Steve Jobs
The list goes beyond the technology companies. One added advantage of these wonderful managers is they have a huge vested interest in their company. Except in some rare cases, they barely monkey around to destroy their company.
Luckily, picking a right manager puts a lot of investing stones in a right place.
If you are like me, who follows Warren Buffett, you tend to stay away from these big companies because they are highly uncertain and too expensive.
The combination of each of these big ideas and best managers enables to form a big and better company. Like Alphabet (Google), Facebook, Apple, Amazon, Alibaba, Microsoft, Oracle. If not these companies, there will certainly be someone else with a different company name, but the idea is not going anywhere.
If you are like me, who follows Warren Buffett, you tend to stay away from these big companies because they are highly uncertain and too expensive. But, if you have a very long investing time-frame and have a prudent buying process, I think, you should invest in them.
Here is how I tackle the two biggest reluctances of value investors from owning these great companies.
High Uncertainties – What is the probability of someone else overcoming these companies with better ideas and execution? There certainly is a possibility, but the probability is very very low. Yes, it does happen, though. Like Blackberry, Blockbuster, and Koday. But, how often do you see great companies like Walmart or Amazon? Once, if you are lucky.
Too Expensive – Yes, they are, but over time their earnings are closing up the gap between price and value. Amazon was selling for 400 times its earnings in 2015; In 2019, it sells for 81, while appreciating the stock price at the same time.
The process of buying and selling stocks is so easy that it is so dangerous to your investment.
I try to ignore the ups and downs of the stock price and daily market news. However, I am not too good at it. I have reduced my holding in Amazon and Apple (of course in some gains) for no reason, which I greatly regret now.
The process of buying and selling stocks is so easy that it is so dangerous to your investment. Someone needs to change my investment account’s password and not tell me so that I will not unnecessarily interrupt my investment.
I try to minimize the risk of permanent capital loss by diversifying. For example, I do not know who will be the absolute winner of the cloud-computing, therefore, I invest in Amazon, Microsoft, Oracle, and Alibaba. Amazon has almost 50% share of the cloud-computing business, therefore, it has the highest possibility of being the winner. And I bet a little heavy on it. Simple as that!
There is no investing without a rigorous analytics, which I am wholeheartedly guilty of. I do, however, occasionally skim through quarterly and yearly financials and check things that I vaguely understand. I have to shamefully admit that this is not my forte, but it does not stop me from the excitement of stock investing.
Disclaimer – Long position on all listed above.
Some Good Reads
- Michael Pettis – What Is GDP in China? (Carnegi Endowment)
- Back to Class: A Teaching Manifesto! – Aswath Damodaran (Systems Thinkers)
- Blue Mountain Capital Letter to PG&E Corp (PDF) (Blue Mountain Capital)