My Investing Strategy
I’ve run into a bit of a lull in my active investing. The market’s in a weird place right now. I’m worried that my prediction on the impact of COVID is probably not going to come to pass. Even though some notable oracles agree with my general thinking, I’m starting to second guess myself. Anyhoo - that’s fodder for a future post. Today I’d like to talk at a higher level about what I screen for when trying to find companies.
To lay it out bluntly, I look for the following:
- Low Price / FCF Ratios
- Balanced Capital Structures
- Competitive Advantages
- Commodities / Staples
Stating the above in words: I look for simple companies without excessive debt, that trade at prices attractive relative to the quality of their cash flows.
For those who’ve done their fair share of investing, I think that’s a sentence that should illicit some ‘duhs’. But I find that even though this criteria could be considered common sense - not many people actually invest with the discipline to follow it when the times get good.
And that’s honestly all that separates me from the majority of the herd. When the prices are expensive - I just wait.
Hedge fund managers can’t afford to do this. When times are good and they’re sitting out, their sponsors will pull their capital out and pour it into the hedge fund manager who IS investing. On the other side, when things go to shit - the hedge fund managers would like to invest. Only they can’t because all their capital is pulling out their money yet again.
The economic incentives that have to rule the decision-making of many of these institutional investors leads to them being rather impatient money. And that’s where I get my edge. I’m patient money and I wait for the deals.