Many have asked me how I invest. This week I share my evolution as a public investor so: 1) You know me better 2) I hold myself accountable to write more about single stocks and hone my craft as an investor.
To preface: Everyone makes money in the stock market in a different way. My style suits my personality. If you and I do not think the same, please try to keep your opinion to yourself. Conversely, if you and I think alike, I want to learn from you, exchange ideas and grow together.
I am a value investor for life. What value means to me has changed from statistical cheapness to quality. I wish I read a more esoteric book that no one knows about, but I discovered value investing by reading The Intelligent Investor. The stock market has changed a lot since the book's first publication – the days of “net-nets” (stocks trading at less than the net current assets per share) littered all over the market are long gone. However, the concepts of Mr. Market and margin of safety still make complete sense.
I started as a deep value investor, which I attributed to the abundance of literature written on the subject so the style was the easiest to self-teach.
I invested in many low valuation businesses that are either not growing or declining. I made money here and there, but 1) The companies I studied were not interesting 2. Most companies deserved low valuation: They were either “dead stocks” (stock price stays flat for a long time) and worse, “melting ice cubes” (another same meaning jargon you might know is “value trap”) with eroding intrinsic value. Many legends are deep value investors, for example: Carl Icahn, Irving Kahn, Marty Whitman.
I don’t recall the exact turning point of becoming a growth-at-a-reasonable price (GARP) / wide moat investor. My hunch is that occured when I started covering technology stocks on the sell-side.
I gained exposure to a whole new world of companies with rapid revenue growth, enormous addressable market, and are valued on revenue multiples. Unlike traditional value investing which hinges on mean reversion, some of the companies even accelerated growth from time to time. I don’t know about you, but I find these technology companies more interesting to study than trying to smoke the last puff out of a declining brick-and-mortar retailer, paper maker, or a marine shipper.
At the same time I got mentored by many successful investors in the genre, further cementing my belief in buying tail winded businesses with sustainable or widening competitive advantages.
So here is my evolution that allows me a lifestyle of: 1) studying interesting businesses and secular trends 2) letting the businesses create value for me instead of depending on the change in near-term sentiments of other market participants to make money by frequently buying and selling non-value creating businesses.
Next week, I discuss my investment process. Talk soon.
If you are interested in learning more about professional equity investing (the "buy-side"), I have two other great articles for you:
Don't know where to start to research and value a company? Have trouble generating stock ideas and differentiating on stock pitch? I can help you. Let's meet!