Hello!
It’s been a while since I posted. Main reason being I have been settling back into the day job now we have returned to the office. The extra time I have had to post had been taken up with a high profile work project.
Anyways, I wanted to share my investing goals and manifesto, I am still working on my process which I have honed over a couple of years now.
Investment goals
Goal is to earn >20% CAGR per year, because of my stage of life, my personal goal is to have 500k in a tax free account. This will give me 50-100k income annual income at 10-20% CAGR. I am not interested in being mega rich, only having the option of not working and security of income for my family.
With a starting balance of 30k saving 20k per year at 20% gains if I am lucky, it will take me 8-9 years to do this. Being 39 if I can do this before 50 I will be happy.
I already have 169k in a SIPP pension so I am sorted after 57, now it’s just about getting enough to support me from 50-57 if I want to retire early.
In reality 20% per year is an average and some years I will not achieve that other years I will get >>20%.
I accept some years I will not make money.
I am looking for the best return I can get, I may love a stock and the business idea, but if a better one comes along I ditch it
Compounded return is all I care about not hitting home runs and bragging about it.
I am always asking which investment will give me the best return right now
Investment philosophy
I believe I can beat index investing and professional funds because:
-It’s my money and I have skin in the game with my best interests at heart
-No performance fees to pay (saving 0.5-1%)
-No liquidity constraints
-Wider choice of investments
-Can change investments on a dime if needed
-No performance stress
-No career risk
-No funds to compete with business
-No sharpe ratio to maintain
-No investors to please
-Invest for the long term
-I can hold a concentrated portfolio
-I can withstand volatility
-I do not suffer from fund elephantiasis
-I will not leave my fund
-I will develop my process over time and it will get better and better
I accept I cannot time the market and can only control my investment process and make logical decisions
I accept I will lose money and will not be perfect in my stock picking, so I need to maximise winners and minimise losers.
Where I find my investment ideas?
Mostly comes from a recommendation or other investors portfolios such as:
Motley fool (SA+RB)
Potential multibaggers (SA)
I/O fund (used to be called Beth technology)
Jonathan Lipton
An advantage hedge funds have is information which is a retail investors disadvantage. So by belonging to investment services I have found them very useful for ideas and stock relevant information. It’s like having your own team of analysts working for you. Twitter is also very useful if you know who to follow.
I try to look for consensus as it’s a sign of collective intelligence of investors more skilled and experienced than me, but understand I always need to think for myself.
One of the disadvantages of running your own investments is its lonely. I work best in a team so I belong to a few stock picking/investment services which have communities. Found this very useful during market corrections.
If a stock that gets my attention or is a recommendation
I always complete a stock due diligence assessment to see if it satisfies my investment criteria of a potential winner.
I am looking for:
Companies with a great story, that have a track record of high revenues and improving operating metrics
That are predicted to generate high revenue in the futures
I am willing to pay up for quality
Looking for for a special sauce and multibagger qualities
A company that is easily understood
A founder than has high ownership of his company
A visionary founder CEO
A excellent company culture
A company that is innovative
Under promises and overdelivers in earnings
Already captured the markets attention
Ideally unique and disruptive
High consistent revenue growth
Scalability
Large TAM
Improving operating metrics (gross margin etc)
I factor in other investors analysis after I have done my own. Because I am time limited, I rely on the expertise of analysts to go deep into the numbers and financials as also because that stuff does not turn me on and I am not very detail orientated.
Tools I use
I use Sharesight to track my results versus benchmarks although it broker integration and analysis could do with some work. If you know if any better tools let me know in the comments?
I use Simply Wall Street because of its ease of use and I really like the way it presents fundamental data in a visual way.
Conviction
My conviction in a stock develops over time
I rank stocks from 1-10.
10 is the highest conversion
8-9 is very high
7-8 medium conviction
<7 I do not invest
I factor in business results and other investors analysis into my conviction ratings.
Consensus amongst investors is a good sign the company is a winner.
I use conviction to determine portfolio allocation.
Portfolio management
I am invested 100% into equities as I will be adding money every month and decide which stocks to be invested in for the long term.
Cash is a depreciating asset so is useless to hold.
No limit on the number of stocks, but its hard to keep on top of so many businesses so there is a natural limit. More stocks equals more diversity but can equal lower returns.
If you do not sell winners the portfolio naturally tends to concentrate.
I did consider DCA, but many investors I respect, don’t do this. They add when stocks pullback and when companies do well and keep delivering on their promises. Being logical and not mechanical is the way here. Its good to evaluate valuation and business results primarily before investing.
Position Sizing
A full position is 3-8% of my portfolio.
A full position of a super high conviction stock is 5-8% of my portfolio.
I start an investment by buying 5-10% of what I see as a full position. In essence it is DCA but you add to stocks if the are fundamental winners.
I scale in slowly over a period of 6-12 months as the business develops and proves itself.
The better the company performs the faster I buy, the more questions I have the slower I will add.
I add more to higher conviction stocks that I already own over newer stocks, because:
-No further analysis needed
-Business model is working
Rebalancing: I never rebalance as this is a losing game. Why sell winners??
I do not trim winners just because they go over 15% of the portfolio. My strategy needs large winners and small losers.
I only add to winning stocks not losers.
Winners are defined as businesses that are delivering on their goals and have improving financials.
Losers are not delivering on their promises.
I do not add just because the stock has gone up, especially if no fundamental driver.
When the market tanks, I will reallocate money from stocks which have not fallen as much, to the faster-growing stocks that have been unfortunately punished.
I will trim if a stock is overextended without a fundamental basis for the move (FUBO/SPCE) i.e short squeeze over the summer.
Length of holding
I always buy with the intention of holding forever but I will sell if sell criteria are met.
Activities
Read quarterly reports
Transcripts of quarterly conference calls
Investor presentations
Stock analysis using Simply Wall Street
Daily activities:
Check portfolio news daily
Check price daily for huge spikes on growth stocks that need trimming
When to sell
Remember opportunity cost! Money needs to be compounded and there is always lots of opportunity out there.
I never hold onto failing stocks or businesses that are not working.
I avoid wasting time in losing companies, remember 1% per year over 20 years is a lot of money!
====> disclaimer I got the following ideas for my own selling strategy from Sauls knowledge base and adapted to my needs and experiences.
Sell companies whose revenues are no longer growing meaningfully -- even if they are great ideas or enterprises.
Sell companies that are growing revenue rapidly, but unsustainably.
I tend to sell a piece if I feel the story has changed (macro trend/fundementals/competion)
Sell a piece (trim) if the stock has run up wildly with no news or fundamental data i.e. over-extended (but needs to be for a reason)
Sell because of predicted poor performance by analysts
Consensus amongst my top investors drops (AYX, is a good example)
If I need cash for an attractive opportunity, I:
(1) sell a little of stable, slower-moving companies that I have confidence in, but which haven't fallen hardly at all and which aren't going to run away from me when the growth stocks start back up.
(2) Sell a little of high flying stocks with growth that doesn't warrant their high valuation, and which therefore seem vulnerable.
(3) sell my little experimental positions in stocks which may turn out well in the future, but where I have surer places to put my money.
There it is.. I will update this post over time depending on how my process develops.
To your success,
Zero2hero @growthstocksroc
Not financial advice, please do you own due diligence.
Interesting process! Some what similar to mine, so I can definitely appreciate. Good luck and keep on rocking it