To be able to answer, you must first be sure that you know your investment strategy. Think about the securities purchases you’ve made in the past 12 months. What is the common strategy for each of these purchases? Now analyze the stocks that are in your portfolio right now – is there an underlying strategy behind all your stocks?
I suspect most of you will have difficulty identifying this underlying strategy. Having analyzed dozens of individual stock portfolios over the years, I’ve found that in most cases, investors buy stocks without a real underlying strategy. Any reason is good to buy a security – we believe in the potential of electrification of transport, our brother-in-law has made a lot of money with a stock, and he recommends us to buy it, a favourable article has appeared regarding the security in the financial newspaper, we heard about the stock on Reddit or Twitter, the curve and the volume of the stock offer a technical buy signal, etc.
Many investors are like bees going from flower to flower looking for the one that will allow them to make money quickly. Perhaps they will find success in the short term (although I doubt for the long term), but they will inevitably end up with a portfolio scattered all over the place, with no underlying strategy.
Now that you’ve had a few minutes to think about it, could you define your investment strategy in two words? To make the exercise easier, it is permissible to use terms such as “Deep Value”, an investment strategy recognized, but which in my opinion has been largely neglected for several years.
Or would you rather be in the “Growing Dividend” camp? Rapid growth? Growth Disrupters? High barriers? Special situations? IPOs? Favourable momentum?
In short, there are almost as many strategies as there are investors. What matters is where you stand. If you can’t pick one or two strategies that match all the security purchases you’ve made in the past year, then you don’t have a real strategy. You browse all the flowers in the neighborhood, without distinguishing between the vast possibilities available to you.
On the other hand, if you have managed to identify the two words that define your investment philosophy well, you may have seen an evolution in this strategy over the past few years. Perhaps you have gradually moved from “day-trading” to “growing dividend”? Or vice versa?
I believe that an investor should stick to their method of investing. The worst thing you can do is change your strategy with the weather – my father called these investors “weathervanes” in his book La Bourse ou La Vie. That said, an evolution in one’s philosophy over the years is normal, especially if it is the result of lessons learned.
I engaged in the exercise of reviewing the purchases of new securities that we have made in our privately managed portfolios over the past two years (since we do few transactions, 12 months was too small a sample). We have acquired four new securities since the start of 2020. In each case, I find that we were confident that we had acquired a stock of a great quality company at a price that we considered reasonable. When I examine all 30 securities in our private management portfolio, I come to the same conclusion.
So my two-word definition of our investment philosophy is “Affordable Quality”. Although we have always favoured quality companies in our investments, I see that the aspect of quality has taken an increasingly important place in recent years.
What’s yours?
