This page will mainly describe my investing philosophy, what I look for and don't look for, and my approach to buying/holding/selling.
I am much more picky in what I buy these days. Whereas I used to be more of a gun slinger and think I could calculate the odds and use the kelly criterion to allocate bets as per my estimated probabilities, I realise it is better to focus on higher probability events happening/unfolding, making sure the downside is somewhat covered, and making sure there is a 10-bagger scenrario for the stock even if the scenario has only a 5% of happening, but definetly I'd like a high chance of a 3x if xyz happens. Below is what I look for before putting on a trade in order of importance:
- Has to be within an industry I can understand or in an industry which I'd enjoy learning about (natural resources, telcos, media, insurance)
- Top tier management (integrity, captital allocation skills, intelligence, history and experience)
- Management and the board having lots of skin in the game
- Existing profitability from an asset, or assets, which back up the valuation today (and preferbally then some)
- Organic and/or inorganic growth potential for a 10x in share price. I want the scalability but with minimal capital needed
- A board of directors who have excelled in there professions beforehand
- A capital structure which can be used by management to scale the business or unlock shareholder value with
Now sometimes I will come across an opportunity which doesnt tick all those boxes but I like the risk/return on hand. Like Canfor doesnt have room for a 10x, and Koryx Copper doesnt have any cash flows. But I believe I also understand enough that lumber is in a deep cyclical trough and I believe Heye Daun will work tirelessy to unlock shareholder value using all the tools at his discretion. But more often or not, I like investing alongside the likes of; Tony Marino, Adam Waterous, John Malone, and your Mike Roses. The guys who can pull a rabbit out of the hat during the bad times and create value in the process. The ones who use all the tools at there disposal to eek out a higher return for shareholders. I like those as I get tax free compounding over the years and its much nicer to cheer on a competent manager you like from the background than having to go from shitco to shitco in the hopes of finding the next 3 month trade.
For me that sweet spot for market size is 500-2000mm. At that size the company has some durability and foundaiton to it, but also the chance for a 5-10x still. As you trend down to that <300mm mark, suddenly the companies durability and foundation isnt so assured or strong and also trading liquidity is much tighter which makes entries and exists harder. And above that 2bn, to get a 10x from a 3bn company, you need a 30bn market, which is harder to achieve than a 20bn market cap.
Ideally I want to find positions in which I can envison the next 18/24 months and go from there. If the company executes I'll keep holding and extend the timeline out. But if they balls something up and a pattern emerges of poor execution then I bail out of the positon. Time and capital is precious and I see no reason to stay with companies which cant execute when there are plenty out there which do.
Tax reasons comes into why I'd also hold. Like with TNZ right now, rather than lock in a 24% gift to Sir Kier and have to make investments which need to prove themselves, I'd rather hold TNZ a bit longer as they unlock the NOBV potential and use the power they have in the bank to do an inevitable next deal with.
Holding a positon for me takes alot of work as I want to keep up with as much data on the company, its competitors, and its supply chain as possible. So I dont enter positions lightly as I know the work entailed for holding for 18-24 months. I also tend to be very focused as I know its easier to know alot about fewer companies. Which goes back to the saying, "its better to know alot about a little, than a little about a lot."
Selling well is a tough game, I'm very good at cutting losers, but sometimes I cut a stock too soon before its had time to go off to the races. Buying/selling is a pshychological mind game, "have I bought too soon," "have I sold too soon," its a funny thing to get on-top off. Something I try to work on diligenty. I'm in the mental process of pulling together a futures trading strategy where entries/exits will all be pre-determined with stop losses and profit taking.
I try to avoid people I consider; incompetent, untrustworthy, or plain idiotic. This wipes out alot of people foruntately (or unfortunately). I also try to avoid pre-revenue companies for obvious reasons as they are at the whims of capital markets, governments, and large shareholders etc. I also try avoid sectors where technology moves fast like AI, biotech, and semi-conductors. I also avoid sectors where consumer habbits can change on a dime like retail, just look at fashion (I have literally no idea on the matter). I try to avoid management teams who arent top tier capital allocators as I know small leaks can sink great ships. I try to avoid unscrupulous management teams who when they wake up in the morning only think about there salary and compensation incentives and not creating per share value for shareholders. I try to avoid companies which are just stagnating and offer no per share growth and where the management team is happy to go through the motions each day. I try to avoid investing in countries which arent listed in New York, London, Paris, EU, Toronto, and Sydney, as I know I can somewhat trust the language, accounting and auditing in those countries.