What’s the Best Way to Invest in Stocks?
That depends.
When I worked in Venture Capital, I listened to several entrepreneurs pitch their startups. What I learned was that investing is a very personal endeavor.
The same investment opportunity may look amazing or ridiculous to different people. People have different goals, experiences, time frames, risk tolerance, personalities etc. All of these affect your investment judgement. As a result, before buying a stock, what’s important is to understand what you’re buying, to know what your investment goals are, to develop a personal investment philosophy, and stick to it.
Below are the two types stock investing approaches I plan to explore in more detail on this site:
Investing in Mavericks: Venture Capital in the Public Markets
Investing in Dependables: Concentrated High Probability Investing (This is an experiment)
Here is a brief overview of what I mean by each of the above.
Invest in the Mavericks: Venture Capital in the Stock Market
Venture capital is a form of investing that provides funds to early stage, emerging companies with high growth potential. Venture capitalists take the risk of investing in startups, with the hope that they will earn significant returns when the companies become a success. That said, they are also willing to take losses from investing in unproven, high-risk businesses.
I believe one can take on a similar approach in the public markets. This investing approach is likely more difficult than the one above. That said, quite lucrative if executed well and patiently. This approach really comes down envisioning what the world may be like in the future, and investing in companies who can make that proposition a reality. We would be looking for small companies poised to become the greatest companies of our time. We want these companies to be run by visionary leaders, and we will aim to own these stocks for very, very long periods of time, perhaps forever.
For such investments, one would consider a company’s growth potential, the strength of its management team, the uniqueness of its products, and its (hopefully growing) competitive positioning.
UPDATE:
Invest in the Dependables: Concentrated High Probability Investing
Conventional wisdom says if you want to make a lot of money, invent something, create a new drug, strike oil etc. But, in investing, boring and predictable can be beautiful.
Investing in Dependables is really about investing in growing, durable, and well-managed businesses at attractive prices. This approach really comes down to the following:
Believing that events can cause businesses to trade significantly below their intrinsic values. That is, stock prices become disconnected from their fair values.
Having the patience to wait (really wait) for good ideas to present themselves, and buying only a handful of “high-probability to succeed” stocks per year, and most importantly, doing nothing in between. Then giving time for the investment thesis to play out.
Investing only in the best, most durable companies and thereby giving yourself the best chance of avoiding mistakes, and not diluting results with poor investments.
Ideally, having the conviction and ability to bet large when great opportunities present themselves.
Of course, there are many different investment approaches out there. I believe the above two approaches are quite good, and can generate quite good results. We will be going into more details about each over time.
CONTINUE LEARNING WITH ME
Subscribe to get weekly investment insights sent directly into your inbox.