There are four things I like outside of work:
Spending time with my family
Exercising (playing football)
Investing in listed stocks
Much has been said about the benefits of the first three so I won’t dwell on them here. But the fourth is a seriously underrated pastime. I think that all professionals in the technology industry (founders, developers, designers, journalists, etc) should do it and not necessarily to make money (although that can be a nice benefit).
My track record
I’ve been investing properly for 7 years. Here is my record (calculated using the approximation method) plotted against the FTSE and the NASDAQ. Over that time I invested in hundreds of stocks around the world, predominantly in tech:
This is in perpetual beta but here is my current thinking:
1. Understand the limits of your own understanding
Almost all of my losses have occurred when I have listened to someone else’s advice but not understood the fundamentals of the company in question. Sometimes I listened to friends, sometimes journalists, sometimes tipsters. For about a year I bought and sold Cooper Tire and Rubber because a friend mentioned it was a “good stock”. What was I thinking? I don’t know anything about tire or rubber.
2. Back yourself when you know something
It is not true that anything you know is already necessarily baked into the share price. In 2010 I was founder of gaming start up Picklive and was based in White Bear Yard, a London accelerator. I noticed that most of the startups at White Bear Yard were using AWS. The following year I noticed that all of them were. I thought if everyone here is using AWS, that’s probably true at all accelerators around the world. One day some of those startups will get big and then all big companies will be using AWS and Amazon will kind of own the internet.
Maybe I got lucky but I bought Amazon stock. I don’t think that my observation was already baked into the price (it is now). I don’t think analysts in investment banks covering Amazon had access to any better information that I did, neither did institutional investors. In fact, I had the best information. I could beat the market if I backed myself based on what I’d seen and knew to be true.
I’m a big believer in Graham Value Investing but most people don’t have the time or the skill to properly assess whether a stock is mathematically underpriced. Instead you have to rely on things you’ve seen that might put you ahead of professionals covering the sector. AWS revenues weren’t reported separately until around 2013 (as Jeff Bezos says, so as not to draw attention to oneself!) In 2010 I knew more about Amazon’s chances with AWS than an analyst covering the sector. The belief that my knowledge was ahead of the market, was a proxy for concluding that Amazon was underpriced.
3. No portfolios
I used to think I needed a portfolio to spread risk but if you’re going to do that you should buy an ETF and forget about it. To beat the market you need a half dozen great companies with great management teams that you fundamentally understand.
4. It’s no good if you need the money
There’s no worse feeling than having to sell a stock that you think has room to grow because you need the money. My returns are depressed because I periodically need money. You need to be able to play the long game.
5. Invest in managers that stick around
Why do Jeff Bezos or Mark Zuckerberg keep working? They don’t need the money. They have something to prove. I like founders/CEOs like this. The average term of an S&P 500 CEO is around 5–6 years. That’s too short to make good decisions.
6. The world is big but it’s getting bigger
Dominant global companies can grow for years by standing still. Every month there are thousands of new consumers able to afford new goods and services. Despite negative news headlines the world is irresistibly getting bigger and everyone wants the same things. We live in an unprecedented time of “winner takes all”.
7. There is a late majority
This might not be true forever but fashionable things like craft beer appear in places like Hackney first, then the rest of London, then the rest of the country. The same happens in Williamsburg in New York, then it goes outside of the city and then around the globe. This takes longer than you think. If you notice things in East London and think they are old hat, most people probably haven’t yet adopted them but will. On my daily cycle to work I observe how Teslas started appearing in the rich and cool parts of town, then the rich parts whether cool or not. Then the rest of town, and then rest of the country. This is nailed on and I bought Tesla stock as soon as I noticed. We all want the same things in the end. Steve Jobs knew this very well.
8. Long term investments must have a moat
These days the biggest threats to growing listed companies are not established competitors but rather new entrants. Ask yourself — how hard would it be for a new entrant to displace this company? How much capital and time would it take? Can you even imagine a world where the company in question isn’t dominant?
Well done Tim, you have a thesis and you’ve made some returns, what do you want? An ice cream?
I’ve always thought that stock picking was a bit grubby and not worth talking about because:
It revolves around money and we don’t like to talk about money.
It sounds too good to be true, like a horse racing tip.
I have come to learn it’s the complete opposite. If you read Warren Buffet, investing is about understanding the future of the world. Successful stock picking involves lots of reading, thinking and reflecting. It involves coming up with your own world view and then having the strength to act upon it: a far higher bar than merely talking about what’s a good product, interesting technology or who’s an admirable management team. It’s also a higher bar than investing someone else’s money.
Most importantly it’s not just about business. It covers technology, politics, demographics, ethnography, education, economics. Every facet of our daily lives is rolled up in the share prices of listed companies.
Understanding the future is the very essence of being a good entrepreneur, a good VC or a good consultant. I would encourage everyone that works in these fields to try it, it will make you think more deeply about what you’re doing and about the world around you.
At Mint we even have a Slack room dedicated to it, right alongside our lunch room, our books room and our music room. It’s that important!
One more thing
Just look at the 5 biggest companies in the world mapped by their age: No surprises in the case of four of them. But what on earth is Berkshire Hathaway doing there? It has been around since the 60s, has no technology to speak of, yet is one of the most valuable companies in the world. If you’re not a PHd, understanding these levers of value might represent your best chance of owning a large slice of the future (until that becomes automated, of course).
I encourage everyone that has an angle or a point of view to try it as a lifestyle choice, like spending time with your family, reading or exercising.