Though I’ve always been attracted to the stock market for as long as I can remember, I’ve come to investing a bit late in life. In a way it has been forced on me. I’m not an ‘ex’ or even a ‘would-be’ hedge fund manager; my background is in corporate finance. But after the end of an assignment 3 or 4 years ago, I decided to pack it in, leave Gotham and find a location with a slower and more comfortable pace of life. So for the past couple of years while enjoying this new lifestyle I’ve been studying up on how to make my nest egg provide for me, even grow, so that I can stay here in the ‘Bel Paese’ and never have to return to the ‘ratrace’, that is, of course, unless I really begin to miss it. In my studies, I’ve been inexorably drawn to value investing ‘like a moth to a flame’, as they say. It just seems to suit me. I’m a patient, probabilistic planner (alliterative to boot!), I like counterintuitive problem solving and I’m a great believer in the ‘Keep It Simple Stupid’ theory. Yet, we all have flaws, and me more than the next fellow; my most obvious investing shortcoming is that I can be a bit undisciplined at times, less than rigorous. However, at least I know it and that’s the reason for this blog. I started it as a kind of diary so that I would be forced to formally detail my thinking behind each new position in the part of my portfolio dedicated to value investments. The rest of my portfolio is made up of several core positions (mostly investments in companies run by capital allocators I respect, like Prem Watsa at Fairfax Financial) and some income producing equities, none of which I will be discussing on this blog. But up to half of my portfolio is dedicated to investing in common stocks that fall into the category of value investments. More specifically, I look for situations where I believe I might have some competitive advantage. Thus, the companies I consider are relatively small (I try to stay under $1 billion market cap, better yet if they’re under $100 million), and of course I look for the fabled ‘margin of safety’ (say, for example, when Mr. Market is valuing the company at less than the net cash it has in its coffers), and finally I look for an identifiable catalyst that will help to realize the hidden value (some kind of transaction like a spin-off, a recapitalization or the sale of part or all of the company is the best). Oh, and if possible, there should be some good reason why everyone else is selling, no, HAS to sell, despite the fact that the company represents a good value proposition.
I think you value investors know where I’m coming from. I’m a great fan of Greenblatt’s awkwardly titled book “You can be a stock market Genius” as well as Klarman’s “Margin of Safety”, not to speak of Graham & Dodd’s “Security Analysis” and Graham’s “The Intelligent Investor”. Of course I also like Pabrai’s “The Dhandho Investor”, even if I’m not always sure of what to make of his evolving portfolio style. He’s certainly a thinker, though, and I’m greatly thankful for his introducing me to the investment checklist concept. I find it invaluable. Then there is James Montier who I have to mention for making me aware of how much the psychology of the mind tricks us into being naturally bad investors.
So take the musings on this blog for what they are, my (incomplete) investment diary. As always, be forewarned that I am in no way advising the reader how he or she should invest, or suggesting or promoting any of the investment ideas discussed in this blog. You should always do your own research and make your own investment decisions. I learned this early on when I followed an investor ‘hero’ of mine into a position that subsequently became worthless. We all make mistakes. Make sure the ones you make are your own!