You don’t need to have been trained on Wall Street to be a great investor. My grandma’s track record is better than most of the hedge fund investors I’ve come across. She didn’t work on Wall Street nor was she a finance bro. She paid attention, was smart, patient, made bets, and remained unemotional.
She bought Microsoft in the 90s and never sold a share. No brainer, right?
But it wasn’t always a no brainer. Although they look like little blips now, they weren’t at the time. In the 1999 crash, it fell 50%. Imagine that…your net worth down 50% like that…what would you have done. It then proceeded to be FLAT for the next 11 years. You would have made a whopping 1% from Jan 2001 to Jan 2012. Again, what would you have done?
But, of course, it has exploded since and she now looks like a genius.
So, lesson #1 in investing: be prepared to wait. a lot. longer than you would have liked. As Charlie Munger says (Warren Buffet’s partner), “The Big Money Is Not In The Buying And The Selling But In The Waiting”.
Lesson #2: do the opposite of what your emotions tell you. You have to zig when you want to zag, buy when you want to sell. Something I learned just this week. The time to panic is when no one is panicked (sell at the top, if you want). Then, when everyone panics is when you buy.
Above is Nvidia’s CEO signing someone’s boob. CEO’s are not rockstars or athletes so they probably shouldn’t be signing boobs. When they are, perhaps the markets are a bit too hot. If you wanted to think about selling, this would’ve been a good time.
That was on June 6th…nearly perfectly at the top of the market.
Now, once you see the stock falling more and more once people start panicking is maybe a good time to buy back in.
Investing Strategy
Stealing from one of my investment role models, Terry Smith, here who’s strategy I love and is as follows:
Buy good companies
Try not to overpay
Do nothing
He absolutely nailed that. Can’t tell you how many complex investment strategies I saw during my time in private equity. They all were much more complicated and I’m sure less effective.
He nails it here. That’s it. That’s how you invest.
Terry Smith is a fund manager out of the UK. He runs a $35Bn fund, has crushed the markets (and life), is incredibly smart, and also hilarious…what’s that? Sounds like me? Stop, you’re too kind…
HIGHLY recommend you go listen to his Annual Meetings here (start at 2024 and work back). I did this when on runs during COVID and it taught me how to invest and think, perhaps more than investment banking and private equity combined.
Buy Good Companies
A mantra I love about investing (but also the people in your life) is:
find the freight trains and get on them. Own enough to make it count.
Good companies, like good people are rare. Most companies aren’t good. They struggle to grow, they dont have repeat customers, they can’t defend competition…they dont make money for a long period of time
Let’s go back to my grandma. Her thesis for Microsoft was she thought computers were important and would change the world. She also liked Bill Gates and thought he’d be the richest person in the world. Check check check. Nailed it. Not that hard, right?
It was pretty obvious Microsoft would change the world right? Don’t make it harder than it needs to be.
What do you think are the best companies in the world? Buy them!
I like to think of my portfolio as a group of amazing businesses I’d never want to sell.
The best investors are often founders because they go all in on something and never sell. Bezos never sold Amazon because he poured his life into it, and he’s the 2nd richest person. Bill Gates would actually be worth a trillion dollars had he never sold stock. So, try to find the things you’d never want to sell.
Going back to the quote at the top, the real money is made in the waiting. That’s because you want compounding interest to take you home.
To see the power of compounding interest, go here and play around with it. Calculate your net worth if you invest well :) In short, money makes money. And more money makes more money. If you double 2, you get 4 (an increase of 2). If you double 4, you get 8 (an increase of 4). The bigger your snowball gets, the bigger it gets each time it doubles.
So, you’ve got to let your snowballs cook. Buying and selling in and out of stocks ruins that compounding process.
What makes for a good business?
Oof, ok, this is where it does take a bit of smarts, but not a ton. Because, funnily enough, the best businesses are the one’s where an idiot can run them and they’d still crush.
Why?
You want to find companies where growth is locked in and occurs naturally. I like to find companies that are a “tax” on a certain thing. Your wages are taxed. So, the more money you make, the more the govt makes money off you on taxes. So, without doing anything, they made more money. There are businesses like that.
Facebook for instance, owns Instragram. And brands continue to spend more and more money on social media ads, increasing IG’s revenue…without them doing anything.
Another example, Visa and Mastercard are duopoly on credit card processing. Every single transaction that occurs on their pieces of plastic, they get a cut of. Well, people continue to spend more, use less cash, and buy more things digitally. All drive growth for them.
The beauty of these businesses is the combination of locked-in growth but also high profitability. Instagram literally doesn’t do anything if a brand decides to double their spend. The same way if you spend 2x more this year on your credit card, no one from Visa comes to your house to show you how to do it. This drives profitability.
Compare that to a service. If you’re a plumber, you have to go service each house. Each trip costs you time, $, gas, labor, parts, etc. You can’t do 2 jobs at once. Not only is your growth capped, but so is your profit.
Then, the next thing is durability of earnings. This is what is important because remember, you want a biz you’d never have to sell. Say 20 years. Imagine all the competitors that will try to come. The only way they’ll make it is if competitors CANT COMPETE WITH THEM. Find these monopolies. It is very hard to compete with Instagram. You can’t just create a new social network and get billions of people to use it. Visa and Mastercard own the payment rails created alongside banks/govt. You can’t easily create another one. The fact that they can’t compete with you lets you make money for a very long time. Because the premise of capitalism is that all profits are eroded away by competition. If you see someone selling a widget, you go try to create your own. To entice customers, you lower your prices more than the other widget. They buy yours. Other widget lowers their prices. Great, now ur in a price war. Profits are eroded. Not a biz to own forever.
So, find things that simply no one else can replicate.
This is for sure the hardest topic to get into. This is where investment banking and private equity was really valuable to me. If I learned anything, it’s that some companies are better than others. Competitive advantages are the name of the game. I sold an aerospace company that was the only company in the WORLD that knew how to make a specific part for an F35 aircraft. They also were the only one’s who could make tubes that carry all the fluids on a Boeing aircraft…think that’s good? Ya, we sold it for a massive amount of money. Here’s a good primer on what a good business is.
Try Not to Overpay
Everyone LOVES to waste time talking about things being overvalued. No greater waste of time. No one is smart enough to know these answers.
Remember in the pandemic when everyone was debating whether the economic recovery would be a U, W, or Nike Swoosh shape? Was it any of those? Was it worth debating for all that time?
No one ever knows where the market is heading. YOU CANNOT TIME THE MARKET. NO ONE CAN. STOP TRYING. WASTING TIME (AND MONEY).
The only thing you can ever do is buy.
And its quite literally always a good time to buy.
People are so desperate to feel like they’re getting something undervalued its weird. In life and investing, you get what you pay for. Good things are often expensive…and they are often worth their value.
Picture an expensive resort - isn’t the experience always so lovely its worth the money?
How about a midprice point hotel? Never know what you’re gonna get…
When you’re buying your first home, you won’t say to your real estate agent “where’s a part of town that people don’t really like to be in? A bit hit or miss?” No, you’re going to say “what’s the cheapest house in the best part of town with the nicest people, best schools, restaurants, way of life…”
I’m more than fine to pay up for good things. They’re cheaper in the long run.
Have to get this off my chest: the amount of time I WASTED in private equity debating price was absurd. We lost out on one of the best companies I had ever seen over $15M. Sure, not peanuts, but on a $450M deal that’s 3%. Probably not going to change the outcome
What I realized is this: investing is about placing bets on the things you believe. The prices are what they are. Do you want to make the bet or not? If you do, bet on it. If you want to wait for a better deal, you may never get it. Better to pay up and partake on the ride than miss out on the whole thing.
Another thing: THE BIGGEST THING: the real mistake isn’t losing money - it’s NOT making a f*ckton of money. Sure, sucks to lose money. But scared money don’t make no money. And making money involves taking risks. If there’s no risk, there’s no reward. No one wins the game afraid of losing. You have to trust yourself, your guts, your smarts, and pull the trigger.
Don’t be afraid to pull the trigger: Avoiding a bad deal has way less value than finding more home run outcomes. I’ve lost a TON of money on bad deals. Doesn’t matter to me at all because the good deals have more than made up from them.
On that… water the flowers and pull the weeds. Duh. But people do the opposite in investing. They sell the winners (flowers) and just wait endlessly for the sh*tty companies to come back. People are so averse to losing money its weird. It happens.
Terry Smith talks about making money with old friends. Continue to buy your winners. Never sell to early. So plan to not sell. You’d be pretty mad if you sold Microsoft in 2016. Water the winners, sell the losers.
DO NOTHING
Actually the hardest part. The reason there are good deals in the market is because humans are stupid and emotional. You are a human. So while the rest of the human species is panicking, you must be calm. When everyone thinks the world is ending, you must not. When everyone is selling, you must buy.
Once you buy, literally log off your computer. Tell your parents your password and make them change it and not tell you. Go the f*ck outside, do some fun stuff with your friends, and don’t sit around looking at numbers on a screen. Large or small - they’re all just numbers on a screen. They’re all just a vessel to enjoy your life anyways.
Nick Sleep is another investor role model of mine. Could not be a bigger legend. He literally beat everyone doing less than 100hrs of work per year. What. A. LEGEND. The last part is my favorite - he went about living life.
That’s the point of investing anyways. You are putting your dollars to work. Bill Gates technically worked for my grandma. As he went about creating Microsoft, she raised my mom to be the best mother I could ever dream of. I am forever grateful to both of them <3. That’s the point…invest money → go live life → more money to go live more life
Last thing on Nick Sleep. Someone responded “well ya his name was Nick Sleep, not Nick Work.”
Here’s another fun fact for you. Fidelity studied their best performing accounts. Those who did the best either:
Forgot they had an account
Were dead.
Anyways, do nothing. The big money is in the waiting. If you do that, you’ll beat 99% of people.
Other Thoughts
It's not about finding the next big thing, its about finding companies that have already won. It's clear Google won search and search is valuable and not likely to go away
The next big thing is often the current best thing. Where I’ve lost money is thinking X thing is the next hot thing. Rarely the case. It’s what’s already big that will continue to get bigger….remember my compounding snowball analogy?
Pay attention. You’re a consumer who spends money. Companies only grow when they are on the receiving end of money. So pay attention where your money is going. Go one step further and ask “can I invest in this?”
What software has changed your life at work?
What are products you can’t live without?
Remember when Lululemon first came out? It was like a mad dash to buy it. I remember we had a sit down at dinner and my parents placed an allowance on all of us because we were spending too much there. I was in high school so let’s say 2011. It was $42. It is now $233. Had you bought some stock everytime you went to the store, you would’ve made 5x (12x before it recently went down - maybe a time to buy?). Doesn’t take a genius.
Thanks a lot to my dumbass for being in high school not buying LULU and a home…smh
Another example was Amazon. Remember in college when you first started seeing literally every mailman’s truck full of Amazon boxes. You and your friends always getting Amazon packages. I do! For me, this was in 2015. The stock was $14. It’s now $161. You made 12x your money. Just from paying attention. PAY ATTENTION.
Where people go wrong is NOT buying what they know. Ask someone what they’ve invested in and you’ll have no idea how they came up with these ideas. They’ll tell you some elaborate story about how midwest railroads are underpriced and they’ve been buying railroad stocks or whatever the f*ck they saw on some twitter thread. This is where you lose money. I have lost money this way. You do not know what you are talking about, let alone understand it. You have no edge. Do not buy, please.
As with all things related to success/risk/courage, get out of your own way. Take what the market gives you. Don’t get cute, don’t try too hard. Don’t listen to your emotions. If you are feeling it, so is everyone else. You’re stronger than them so profit off them. Take their money and put it in your pocket when they panic.
Find the freight trains and get on them. Own enough to make it count.
Your investments work for you, so let them compound for you while you are out living and making an extraordinary life for yourself. That way, you can enjoy the profits of your investments with the most important investments of all: loved one’s.
My yacht I bought off my investments:
What matters much more - the investments that can’t be bought and those who get to enjoy the profits with you:
