My Investing Strategy
Since I started publishing my Research and Portfolio, I think it makes sense to once more explain my investing strategy and philosophy. I'll keep it short (less than 4 min)!
Valuation vs Pricing
I invest based on the Value Investing Philosophy. Value investing is the idea of buying something for less than it’s worth. Sounds intuitive, but considering how most investors behave, it’s doesn’t see so intuitive afterall.
They chase the latest hype and buy stocks that go up simply to sell them to someone else for more than they had paid. They’re playing the Pricing Game, not the Valuation Game.
Finding Undervalued Companies
A major part of value investing is finding undervalued companies. Such opportunities exist where the market is inefficient. Now, where or when is the market inefficient?
1. Size
The most obvious reason for inefficiencies is size. Large institutions cannot buy smaller companies, which causes them to be neglected by large asset managers or analysts. They aren’t featured on the news or CNBC either, so even small individual investors don’t know about them.
2. Industries
Some industries are very popular (for example, AI and Semiconductors), while others are less popular (telecommunication or retail). The less popular, the less investors trade these securities.
That makes them unattractive to analysts and Wall Street firms because they cannot earn high commissions with them. Once again, inefficiencies are created. I have such an example of a telecom company in my portfolio. Here’s the write-up:
3. Special Situations
Sometimes, a company goes through a spinoff, bankruptcy, management change, or something similar. This can change a company to an extent that makes it an attractive investment even when it didn’t qualify as such before.
4. Short-Term Focus
Not a place but a state of mind that causes inefficiencies is the short-term focus of investors. Stocks change hands faster than at any time before. The average holding period of a U.S. stock is 10 months.
To be on the right side of the trade, it’s often enough to have a longer time horizon than 10 months. One way to benefit from this is by buying companies in a cyclical downturn or short-term headwinds.
I also have an example of such a situation in my Portfolio. Here’s the write-up:
My Risk/Return Profile
Since I’m a rather young investor, I’m currently owning a relatively small portfolio compared to the amount of money it will be worth in 20 or 30 years.
Because of that, I aim for high returns. High means a minimum return of 15% per year. If I feel like an investment cannot meet this standard, I’ll not invest.
But high returns do not equal high risk! As a value investor, I always prioritize downside risk and an appropriate margin of safety. What I do tolerate, however, is volatility.
It’s okay for me if a position is down in the short term because it is unfavored by the market or in a cyclical downturn. If you panic in volatile times, my portfolio is not the best fit for you ;) It’s concentrated (4-6 positions most of the time).
And high concentration will always increase the chance of high volatility. To me, volatility is an opportunity, but if you feel like selling when a position goes down or is criticized, this is not the right strategy for you.
This was a brief explanation of my investing approach and thought process. If you have any questions, let me know in the comments!
If this strategy resonates with you and you have a similar risk profile, my portfolio and research might help you on your journey:
As always, thanks for reading the Sunday Episode of the All-in-One Investing Newsletter, and see you in the next episode!
I’ve promised more research articles, so the next one will likely already follow next week. It’s either another small-cap gem or a Chinese large-cap. We’ll have to see ;)
My Research:
My Portfolio:
