My evolving investment approach
It’s interesting to note how my investment research process has changed over the years.
From the time I first read about value investing in 1995 up until 1998, my focus was almost exclusively on the numbers. Basically, I picked investments based on my assessment of the value of each business with a much lower emphasis on other factors (management, economics, product life cycles, etc.). I crunched the numbers and bought if something looked remarkably cheap.
From 1998 until 2001, my focus began to include a more thorough analysis of business economics. Here, my aim was to gain an in-depth understanding of the competitive advantages of each business and to what degree they were sustainable. This effort was much more qualitative than quantitative.
In 2001, I started to include a much more thorough analysis of management, too. For this, I looked at management’s tenure, their competence in the field, their compensation structure, their ownership of the business, the way that they talked to shareholders, etc. This, too, was a more qualitative effort.
What I’ve found is that you can never stop learning in this field (or in any other for that matter). Every year, I bring new elements into my analysis. Every year, I read books or articles that lead me to dig deeper into certain aspects of each business.
Although my general approach has remained the same–I look to buy underlying businesses, not stocks, and I try to buy them significantly below their assessed value–I continue to add more and more layers of analysis and experience on top.
I keep very good records of the investments I’ve looked at over time, both the ones I invest in and the ones I don’t. This has allowed me to review my past decisions and prevent sins of both omission (not investing) and commission (investing when I shouldn’t have) going forward.
I love my job, and I love learning more and more each year such that I can improve my expertise and, more importantly, my results going forward. And, as Charlie Munger and Warren Buffett have amply demonstrated, that’s a great way to build wealth and enjoy life.
Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.