Welcome to my investing process.
Why am I writing this?
There’s a lot of noise on Fintwit and Youtube, sometimes it can be hard to differentiate between the good and the bad. I am not new to investing, I am 4 years into my journey, but still consider myself green around the ears. However, I’ve found the best way to distil down and think through my ideas is through writing.
I am writing this Substack for a few reasons, predominantly;
Teaching is the best form of learning. Anything I put out has to be to a standard I am happy with and well researched.
To build my knowledge of the companies I research.
To reflect on my process and decisions.
My Journey So Far
I made my first investment in summer 2017. For the first 3 years of my investing journey I was the typical value disciple. Low PE, low PB, job done. I invested a fair chunk of the deposit for my first home. And then March 2020 arrived.
Investing is easy when everything goes up. When you are down 46% it’s a different story. It was only through the sheer luck of staying fully invested that I managed to end the year in the positive.
I was shell shocked for the majority of 2020 and thought a lot about my portfolio. When I broke even I sold-off 80% of my holdings and attempted to index everything. I asked myself, ‘can I beat the market’? To this day I am not confident that I can.
Why bother researching and investing in companies if I’m not confident I can beat the market? For the simple reason that I learn and grow as an individual. I am of the opinion that the best investment you can make is in yourself. Only time will tell if I beat the market.
My Watchlist
So what am I looking for?
In a sentence, Proprietary Architecture. I am looking for businesses that not only have dominant moats, but have the existing architecture in place. Great examples include; Google, Costco, Amazon, Adobe, Nintendo, Rightmove and Games Workshop to name a few.
Proprietary Architecture companies will exhibit the following :-
High gross margins.
Low debt.
Established & recognised brands.
Increasing and recurring revenue.
A product, service or marketplace I understand.
I am happy to patiently wait for pull backs to purchase at my pre-set margin of safety price. I am looking for companies that are so good they cannot help but grow.
My Strategy
My ever evolving strategy encompasses the following :-
Researching standout companies to build an understanding.
Analyse the bull and bear case - how can I be wrong?
Determine a margin of safety price (and wait, patience is a virtue).
If I am down 25%, buy more or sell. Did I get it wrong? Is the bear case playing out?
Hold 15-20% cash at any time until the time there is a major pull back.
Journal any and all of my investing decisions.
I do not want to be sitting in cash for long term periods, as I miss out on market ups. However, my current strategy appears to be waiting on another drawdown.
It’s easy to think that if Google or Facebook was offered at a 50% discount today, that you would purchase, of course you would. They are market darlings at half price. However, if these stocks drop 50%, there will be a reason for it, and I would hazard a guess that they would be quickly sold from portfolios rather than snapped up.
Through research and understanding my aim is to maintain a contrarian conviction, when possible, removing emotional decisions. It’s easy to be optimistic when everything is going up.