If I went back in time and told my 18-year-old self that one day I would contemplate writing a blog, the 18-year-old me would have laughed so hard. I never liked writing nor reading as a young boy, always preferring to be engaging in outdoor and sporting activities (which I still do).
I often came across the saying that “Knowledge is Power” but it has never resonated well with the young me. Today, that saying holds a completely different meaning to me. Knowledge is not just restricted to the subjects we study in school, it is all encompassing and imperative in developing our thoughts, shaping our personality and in decision making.
All these which ultimately influences our career, wealth, mental health, and relationships.
Before I begin, I thought it would be useful to start off with my basic tenets which serves not only as a window for readers to understand the scope and coverage of my writings, but also as a reminder to myself in the highly possible event that I start rambling nonsensically instead of writing.
The advent of the internet has democratized the access to information and almost anyone is able to procure information with phenomenal ease. However, as a result, the world that we live in is overloaded with information, content, and ideas. Some are repetitive, some are obsolete, and some can be conflicting.
Curating therefore becomes especially critical to filter out the noise, retain and transform the relevant information into knowledge. Afterall, information without knowledge is worthless. Knowledge is the ability to assimilate information and form conclusions.
When it comes to investing, I do not deny the role of luck. But having the right knowledge facilitates our ability to make a diagnosis, develop a guiding policy and take coherent actions or inactions in our investing journey. I especially like the analogy given by Richard Rumelt, author of the book “Good Strategy Bad Strategy”.
“Driving or Skiing in the fog is unnerving without a source of orientation. When a single recognizable object is visible in the mist, it provides a sudden and comforting point of reference – a guidepost.”
Analogous to driving under foggy circumstances, the future is highly uncertain and variable. Being armed with knowledge serves as guideposts in our lives, aiding us to evaluate the situation and make better decisions.
Reasons why I started writing
Reading and learning from experts in their fields has greatly empowered me with an arsenal of knowledge that I continuously seek to expand as a self-proclaimed life-long learner. As I continue to amass my pool of knowledge, it is ever more important to develop a clear thought process and framework so that I can apply my knowledge in my investing journey as well as in daily life situations.
By writing I hope to achieve 3 goals:
- To elucidate my thoughts and develop more robust mental frameworks
- Connect with like-minded people
- Improve my written communication skills
For readers of this blog, I do not have any plans to monetize the contents of the blog. If any, I might include some ads here and there in my blog to offset hosting costs but it in no way will restrict the public from accessing the content.
My wish is for readers to be able to draw valuable investing insights out of my writings, scrutinize and challenge my thinking.
Scope and Content
Most of my coverage will involve large and mid-cap stocks.
Small cap stocks present greater information asymmetry, making it tougher to invest in. I also come from a generalist background and will cover a wide array of companies and industries that are of interest to me. However, I am acutely aware of the knowledge advantage that specialization brings about and I am often advised to invest in what I am familiar with. Therefore, it is highly probably that the scope of industries and coverage narrows as I progress along in my investing journey.
The following is a range of topics and content that I will attempt to cover:
- Business Models – The goal here is to learn about the business models of companies. This will include, but is not limited to revenue sources, product mix, cost structure, distribution channels, value proposition, partnerships, M&A activities etc… I will also discuss the strategy taken by the management
- Industry Trends and Competitive Landscape – Industry trends are crucial to help determine the size of future total addressable market (TAM) while understanding the competitive landscape allows us to evaluate the strategy taken by the management
- Management and Compensation – Charlie Munger once said, “Show me the incentives and I’ll show you the outcome”. As fundamentally flawless as a company can appear, if it is helmed by a management with misaligned incentives, it can and will destroy a company from the inside. Ensuring that management’s incentives are aligned with shareholders’ value is an essential component of the analysis
- Financial and Valuation – Appropriate financial metrics to gain a rough gauge of valuation, performance, debt and how to interpret and accounting statements
- Personal Development – These may include book reviews, mental frameworks that are derived from my own experiences.
- Margin of Safety
Benjamin Graham, regarded as the father of value investing, coined the term “margin of safety”, and I consider it to be the core tenet of my investing philosophy.
Margin of safety refers to the difference between my calculation of a company’s intrinsic value and its current stock price. As much knowledge as I can acquire to portend industry trends and analyse a company’s fundamentals, I nor anyone can predict the future with 100% certainty. Regardless of the number of successes I have had in investing, mistaking luck as skill increases my confidence but not my ability.
This false affirmation plants the seeds of my own destruction.
Therefore, it is critical for me to humbly acknowledge that lady luck might not be shinning so brightly the next time round. Having a margin of safety serves as buffer in the event that the future plays out worse than what I have concluded with my analysis. This margin of safety reflects the level of confidence that I have in the conclusion that I have come to. I cannot accentuate the importance of this concept enough. If there’s one thing readers should take away from this post, It is this quote by John Maynard Keynes, father of modern economics theory that sums up the concept neatly:
“It’s better to be roughly right than precisely wrong”
- Long Term Quality
Taking advantage of gaps between expectations and fundamentals is the bread and butter of a long-term investor.
Expectations reflect the future free cash flows a company must deliver to justify today’s stock price.
Fundamentals capture the company’s actual results.
Human innate emotions of greed, fear, and the tendency of herding, causes expectations to understate or overstate a company’s fundamental value more often than not. By adopting a long-term view, which is easier said than done, I attempt to consciously manage my emotions to look beyond short-term volatility and focus on picking good quality companies run by superb management. Such companies, I believe can compound its value over time.
Warren Buffett sums it up nicely in his 1996 shareholders’ letter:
“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.”
- Secular Tailwinds
Lebron James, the best basketball player was well compensated for his efforts in 2020, making about $37 million. On the other hand, Mikkel Hansen, widely touted as the best handball player does not make anywhere near James, taking home a measly EUR 2.5 million in 2020 compared to James.
While both are supremely athletic, and the best in their respective sports, it is unlikely that Hansen nor any future top handball player will make as much as a top 10 NBA player. That’s because Hansen suffers from an “industry disadvantage”.
I came across this concept while reading through a report by McKinsey. Likewise, a company’s choice of industry matters a great deal—more than many realize. Identifying terrific companies that are driving key secular trends translates to a long growth runway for such investments.
In my opinion, some current secular trends include
- The shift of physical retail to e commerce
- Digitization of payments
- Renewable energy
- Ageing demographics in developed nations
- The shift of on-premise enterprise solutions into the cloud
- Healthcare focus on well being and prevention rather than treatment
Riding on long standing secular tailwinds is a clear no brainer to reap the benefits of an “industry advantage”. I hope to be able to identify more of such secular trends in the future and play them to my advantage.
Great ideas involve a lot of preparation, hard work, diligence, and patience. Serendipity plays a role as well. As an investor and in life as well, we must position ourselves to be open to those serendipitous moments because they come from the most unexpected places and at unpredictable times.
I hope you enjoy reading my writings and I’m super excited to post more content in the future. If you wish to connect, please drop me an email at firstname.lastname@example.org – I would love to share with and learn from you!