Random Thoughts on Investing

Random Thoughts on Investing

The problem with investing in this modern age is the amount of information that an investor has to sift through. The problem is really a matter of choice so I try to focus on the information that will yield the most utility. 

I ignore the macro environment and with it most of the madness that passes for information from the mainstream media. I concentrate on individual companies and even there I try to concentrate only on what really matters. It’s been my experience that randomness will play a huge role in your investment success, so you have to diversify your holdings but only to a point. And I believe in investing more heavily in some of my holdings than others. Extending my investing time frame to 3 years and more has helped me capture some of the inefficiencies that lie in the market. In fact one of the biggest advantages you can gain on the competition is to invest for the long term and filter out the meaningless noise from the media outlets. The longer you hold a portfolio of good solid stocks, the more the risk will go out of them, as the passage of time will erode away the risk of investing in them. By diversifying your stock portfolio and extending your holding periods you essentially are managing your risk (the risk of losing money) and managing your risk is the investor's number one job.

One great shortcut is to concentrate on companies where senior management owns stock in the company they run, better still if it is in the small/mid cap part of the market. When management invest in their own company they put themselves on the same side of the table as their stakeholders. 

And speaking of the small and mid cap stocks, that is where my investing dollars tend to go. I am not a fan of companies that get too big (institution complex) unless I see some resource conversion (spin offs, rights offerings etc) activity going on and I respect the senior management. There are always exceptions of course. In fact large companies that divest themselves of divisions (spinoffs) can be a good sign that management is interested in enhancing long-term shareholder value. Too many large firms only want to get bigger usually to appease the giant egos of their CEO's. 

As always experience will be your greatest teacher. You don't have to be particularly intelligent to be a successful investor but you do have to believe in what you are doing. In time the market itself will provide you with your scorecard.