Fish Where the Stream is Full: 13 Thoughts on Investing
Things I think I think right now
Trying a different format for this post. Here are 13 recent thoughts I’ve had about investing.
Moat depth is more important than moat width. Investors tend to be enamored with wide moats, but a defensible narrow moat is more valuable than a wide moat that’s only an inch deep.
Many SaaS companies treated their customers like a captive audience and raised prices faster than they were adding customer value. In other words, they mortgaged their moats and made them less defensible.
The mark of a seasoned investor is to hear a contrary opinion from a respected investor and take it seriously enough to reconsider, but not so seriously that you outsource your judgment.
Trying to intentionally underperform the market is just as difficult as intentionally outperforming it, but if you’re going to try, concentrating in a handful of expensive quality stocks with low-single-digit growth rates is a good place to start. (See quality traps)
You always want to be an investor and not simply a collector of businesses. Great companies do not always make great investments.
Win Murray, director of research at Diamond Hill, recently told my students at the University of Dayton that the more restrictions you put on your investment approach (e.g., only buying “U.S. quality value”), the harder you’ll find it to outperform. Our goal is to find mispriced securities - we should go wherever value opportunities exist.
While some types of restrictions diminish opportunities for outperformance, I have found, on a valuation-neutral basis, that the surface area for good luck improves dramatically when you own great businesses than owning mediocre ones.
I’d rather fish alongside other anglers in a river that has some trophy fish than alone in a stream full of minnows. What matters is what you might pull from the water.
Dividend track records mean very little. If you had argued in 2016 that over the next decade, Diageo, Walgreens, and 3M - three blue chips with multi-decade dividend growth streaks - would cut their dividend no one would have believed you.
The capital cycle remains undefeated.
As AI content increases, demand for authentic content increases. Look toward companies producing or distributing content rooted in real human experience that cannot be synthetically replicated.
Learning about the world’s best businesses regardless of their present valuations plays a critical role in building pattern recognition skills.
Every great company goes on sale at some point. The better you understand the company’s DNA, the more likely you are to capitalize on irrational drawdowns.
Flight Crew members, your content continues below.
Stay patient, stay focused.
Todd