Since I’ve been writing this blog quite a few friends have asked me for investing advice. Being a conscientious sort, I’ve always felt obliged to warn them that I’m no professional and in no place to advise them. However, part of me really just wants to say: ‘it’s all there on the blog. Why don’t you just copy me?’
These days the portfolios of many smart and industrious investors, both professional and private, are no more than a few clicks away. Perhaps taking advantage of this should be part of your strategy? Especially if you have less expertise or time to spare yourself… Continue reading
I’ve started to notice a disturbing trend in the number of investors in my Twitter feed that share the same quality investing philosophy as myself. This was brought quite starkly to my attention recently by some light-hearted mocking and memes of ‘compounder bros’. Other than the mildly uncomfortable feeling that you are part of the group being mocked, the main reason this is disturbing is that it suggests the quality momentum trade may be becoming more crowded. The dot.com bubble and subsequent crash is a sobering example of what might be in store at some point. As I flagged in one of my recent posts, I’ve been thinking a bit harder about whether and how to adapt my strategy to this possibility. Continue reading
I can only post fairly infrequently at the moment as I have a lot on my plate, what with planning our DIY summer wedding and simultaneously embarking on the most important work project of my career so far. It’s been a lot harder to make time for the blog. I do intend to keep it running, but at a slower pace for the time being.
A recurring issue I’ve been grappling with recently is whether I should be trying to shift my focus more to smaller businesses. Instinctively, it feels like the smaller cap space should be a more productive hunting ground for a small private investor like me. I’d expect small caps to be less well researched and the markets more illiquid, giving greater scope for shares to be mispriced. On top of that there should be greater scope for growth when you start from a smaller base. However, in practice I’ve found that identifying high quality is much harder in the small caps space. Should be trying harder? Continue reading
In my view, the most important empirical result in equity investing is just how unevenly long term returns are distributed across different businesses. This has important implications, yet is often overlooked. It provides the clearest rationale for why focusing on quality is the main, or perhaps even the only, thing that matters in the long run. Continue reading
This post was prompted by an article I stumbled across, describing a recent presentation by Aswath Damodaran. I found a version of this presentation here, though this version may well be a bit out of date. In it, he argues that there is clear evidence that acquisitions tend to destroy value for the shareholders of the acquiring business. I’ve heard this plenty of times before but haven’t thought much about the consequences for my own investments. On reflection this seems negligent. Base rates matter. I should really have a better idea of what the evidence actually says.
I expect you’ve heard of the Marshmallow Test. It’s the one where you leave a four-year child alone for a few minutes in a room with a marshmallow on the table, promising further rewards if they can restrain themselves from eating it. After initially trying to hold out for the reward, most four-year-olds find the immediacy of the marshmallow too much to bear. The interesting part of the original Marshmallow Test, carried out in Stanford in the late 1960s, is that the children who gobbled up the marshmallow generally went on to do worse in life according to various measures. Like many psychology experiments, there is a fair amount of controversy around what the Marshmallow Test actually shows. It could demonstrate that an ability to be patient and exercise self-control is a crucial life skill, or alternatively it may be that some other unobserved factors were at play (e.g. socioeconomic background, intelligence, trust). I don’t think it takes a huge leap of faith to believe that patience is an important life-skill. One area where I’m pretty confident that gobbling up marshmallows is likely to cost you is in investing. Continue reading
When making investment decisions, I focus much more on whether a business is high quality than on its valuation. However, I don’t think this means that valuations should be ignored entirely. Sometimes even high quality businesses become overvalued. In practice I am often put off buying businesses where the valuation doesn’t seem to be justified by the growth prospects. But I’ve found this very hard to judge – am I getting it right? Continue reading