A Little Festive Indulgence
End of year reflection
The markets are closed, the presents unwrapped and the uneaten turkey sits idle in the fridge.
In addition to gallons of Baileys and copious amounts of Quality Streets consumed, I've opted for another festive indulgence, an annual reflection.
I began this year disappointed with my research efforts. In 2020, stuck at home, I had thrown myself into reading and running, but shunned research. In January I vowed to improve investment analysis.
There’s no better way to motivative yourself than by actively learning in public. My monthly company deep dives have become an effort to evolve and enhance my knowledge.
Here are some of my top takeaways from 2021.
Pay for the present and get the future for free
A real lightbulb moment this year was listening to the Acquired Episode with NZS Capital. Using the example of eBay before they spun out PayPal, the NZS team highlighted paying for the underlying ecommerce business and getting the optionality on payments processor for free.
Examples of this in today’s market may include Facebook’s underlying advertising business, with optionality on Oculus and their journey into the Metaverse. In hindsight, previous examples include Microsoft as they launched Azure and Disney’s introduction of Disney+.
Picking Your Entry Spot
Patience is a virtue but it’s impossible to time the market. Picking an entry price when buying a stock creates discipline and allows time to consider your thesis after the initial excitement of researching the business.
Whilst it may lead to missing out on a number of gains, it builds a sufficient margin of safety. The Art of Execution emphasises increasing your position if the price drops 25% or more. Assuming your original thesis is still valid, this offers opportunity to purchase at a discount.
This tactic encourages buying regardless of emotion, automating your decision. This was a painful lesson I took away as the pandemic hit in 2020. Many of my entry points came and went, but I was frozen by fear and greed. My inability to take advantage of market of March 2020 meant I missed out on several 100% gains.
In 2021, I have actively logged stock entry targets, sitting patiently whilst waiting for the juicy entry point.
Consider the unit of measurement that makes the business tick
As investors we’re at risk of over analysing each small detail. Every company has a unit of measurement that makes their fundamentals tick. These units vary from business to business but are key to the long term success.
Examples include: -
Nintendo - ROI per console sold + tie ratio
Facebook - ROI per daily active user
Walmart - ROI per store
The Year Ahead
In 2022 I aim to publish at least 12 company deep dives, alongside topics of interest.
I’m open to collaborations plus working and learning with others. If there is a topic or company you would be interested in discussing, my DMs are open.
Thank you for being part of this journey. I look forward to learning and sharing with you in the year ahead.
Merry Christmas and Happy New Year!