On the Art of Investing
- Buffett showed us a chart listing the top companies in the world by market capitalization in 1989 and 2020. In 1989, only 6 out of the top 30 companies were American. Most were Japanese. In 2020, most companies were American, including 5 out of the top 6.
- Subtext: Disruption is the norm.
- Subtext: Entire industries go in and out of favor, BUT…
- There’s a lot more picking stocks than just picking the “hot industry”.
- Buylyst Note: This is why we spend so much time on valuation – we try very hard to not overpay for an asset.
- “…maybe we shouldn’t have sold any Apple…” – WB
- At present, “…10-year rates imply that big tech is cheap!” – WB
- Buylyst Note: This is why we’re reticent to ever sell what we call Global Dominators.
- “We’ve bought stocks we didn’t know much about…”
- When pressed by Becky Quick to name some, Buffett declined.
- Buylyst Note: We know that we can’t possibly know everything about a stock or the underlying company. But we’ve learned to be “satisficed” with the information we can get. At some point, it’s a calculated risk.
- On OPM (Other Peoples' Money) – OPM changes the nature of buy decisions. BRK buys with their own shareholders’ money – that’s a different ball game because it really makes you think before overpaying.
- Subtext: Many asset managers are playing with OPM, with no real negative consequences. So, they don’t need to deliberate over long-term buys. In many cases, they overpay, lose money (underperform their benchmark), and still get a (albeit lower) bonus.
- Buylyst Note: Most of our personal net worth is invested in The Buylyst Portfolio. We don’t just ruminate and analyze. We have skin in the game.
- “We’ve known for a long time that the best kind of business is where you don’t have to put up a lot of capital…” – WB
- Like Software and SaaS.
- Buylyst Note: We’ve renamed “operating leverage” as “scalability”. We love businesses with scalability. In fact, it’s an important pillar in our Watch List rankings.
- On Quants:
- Works in the short-term [for trading in and out of stocks]; not in the long-term – CM
- “…we’re not in the business of trading stocks…” – WB
- Buylyst Note: We’re not smart enough to turn a complex-adaptive system like the markets into a repeatable algorithm. We’ll stick to fundamentals like durable competitive advantage and management quality when we make an investment decision.