Investment philosophy: How to cope with less time available ?

For several personal reasons (don’t worry, all of them VERY positive !!), I already have less time and will have even less time for detailed company analysis in the future. So the question for me is: What do I need to do with my portfolio (and the blog)?

A few questions I have been asking myself were:

Should I

  1. have more positions to diversify or should I have less positions to concentrate on the remaining ones ?
  2. allocate more money to other money managers or even start investing into ETFs ?
  3. try to focus on less risky stocks ?
  4. just do shorter company analysis and focus on the essentials ?
  5. or even go back to a more mechanic approach (BOSS Score) ?
  6. focus more on my Circle of competence and skip trying to extend it ?
  7. Or even focus only on  a small universe of the highest quality stocks ?
  8. increase my minimum holding period to slow down turnover ?
  9. Avoid “Higher maintenance” positions like M&A arbitrage etc ?
  10. Do more “shadowing” of investment managers I admire ?
  11. What should I do with the blog ?

So let’s look at these thought in some more detail:
Re 1: have more positions to diversify or should I have less positions to concentrate on the remaining ones ?

At first, it would be natural to concentrate more on fewer positions as with less time it should be easier to follow a fewer number of stocks. However, I think the number of stocks in a portfolio should not be dependent on the time available but it should fit to the individual investor’s risk profile. Myself, I feel comfortable with ~20-25 stocks, so I don’t think it would be a good idea to change this just because aI have less time.

Re 2: Allocate more money to other money managers or even start investing into ETFs ?

This is something i need to reconsider. At the moment, I only have allocated ~5% to my Friend Mathias (TGV Partner). There are 1 or 2 other managers that I trust and where I might allocate some money in the future. The downside is that it costs fees, the advantage is that I do not have to pay tax on realized gains within the fund.

ETFs clearly makes sense for many investors, however for me it is just a little bit to boring to put money into a general ETF. I don’t like “Theme” ETFs, as this often indicates that exactly that theme is already over when ETFs are created.

Re 3: try to focus on less risky stocks

Paul Hartmann, the last stock that I bought was a stock that I consider as boring and “relatively safe”. Often stocks such as Nestle or Coca Cola are recommended as safe stocks for the long-term. However in my opinion it is very difficult to say what is “a priory” a safe stocks as many things can happen. Bad management, fundamental changes etc. make it difficult.

GE for instance was considered a “safe” stock for almost 100 years until recently. So in my opinion the focus should be rather on “good” stocks than “safe” stocks. A good stock with good chances for long-term success has in principle 2 main factors:

  • good management
  • good business model

In the long run it is less important how cheap the stock is. Clearly it should not be ridiculously over priced, but +-20% do not matter over the years.

Re 4: just do shorter company analysis and focus on the essentials ?

Sometimes when I look at a company, it becomes pretty clear that the stock is very interesting and I have to restrain myself to buy even without having finished the analysis. On the other hand, there were many cases where further analysis showed that there are significant issues which i would have underestimated in my first analysis.

Doing just short analysis in my opinion is quite dangerous because it exposes the investors to many behavioural flaws. Jumping to conclusions without doing the work is clearly risky, so compromising on the level of analysis is not a good idea either.

Re 5: or even go back to a more mechanic approach (BOSS Score) ?

In the beginning of my blogging time, I have used much more “mechanical” tools such as screeners, I even developed my own method, the “BOSS Score” which worked quite well for some time.

Since a couple of years however I stopped using screeners. Why ? I think that these days one needs to put significant effort into any quant model to have a better than average chance of success. With so many quant funds out there, the “simple” formulas have been already arbitrated out, Plus it is a lot of work to maintain a database with “clean” data. Therefore a mechanic approach will not help me with my issue of less time.

Re 6: focus more on my Circle of competence and skip trying to extend it ?

In the past, I looked at a lot of companies that were sometimes far outside my circle of competence, mostly because it was a lot of fun. Often this didn’t generate any investable ideas (e.g. the “watch series”).  Looking at totally new sectors and/or countries takes a lot of time and as we have seen with for instance Silver Chef, the first attempts often fail.

I think in the future I will concentrate more on my “core” areas and I hope that this compensates to a certain extent the reduced amount of time I have available. On the other hand, I do have the luxury that my “day job” actually forces me to continuously extend my circle of competence so I think using my spare time to look at stuff I already know makes sense.

Also, revisiting stocks that I have analyzed makes a lot of sense especially if I found them interesting at some point in time.

Re 7: Or even focus only on  a small universe of the highest quality stocks ?

This is a strategy that some well-known investors follow, for instance Tom Gayner from Markel and of course to a large extent also Warren Buffett (as far as I recollect).

The idea would be to concentrate on only 50-100 stocks where one knows that the business model, management and everything else  is really good, only monitor these stocks and then invest into a smaller subset which shows the most attractive valuations.

Over time this then hopefully leads to a very deep understanding of theses companies and to hopefully superior investment returns.

The biggest issue I see with this strategy is the fact that we are currently in a time period with seismic shifts. Business models which were successful in the past get killed in an ever-increasing pace by new companies like Google, Netflix etc. This approach also makes it difficult to see these “disruptors” early. There might some business models that might survive or even prosper, but in general I think this approach is a little bit too narrow for my taste.

Re 8: increase my minimum holding period to slow down turnover ?

Those readers who read this blog since the early days might have noticed that transaction frequency has slowed down significantly. From several transactions per week, I went to max. 1 transaction per month and now in 2018, I only had 2 new positions in 6 months,

This reflects my goal to increase my holding period. My aggregated average holding period has now reached around 3,2 years. The nice side effect of targeting a longer average holding period is that it forces me to slow down and really think about if I want to add a new position or not, but even more if I really want to sell an old position which contributes a lot to my average holding period. TFF Group for instance, my largest Holding, contributes 0,72 years to the 3,2 years. So I will think twice if I sell them.

Lower turnover also allows deeper analysis even with less time available. It also works against many behavioral biases.

Finally, a really long-term investment focus is one of the easiest competitive advantages that a private investor might acquire. Looking out not only a few quarters but maybe 5-10 years is something that very few investors actually do. Talking about yes, but many professional investors jump ship quickly if there are some hick ups on the way.

I think a longer time horizon also makes it easier to do really contrarian investments. In the past, I timed often my purchases quite well in this area, but then I got nervous too quickly and sold out before it got interesting,

Re 9: Avoid “Higher maintenance” positions like M&A arbitrage etc ?

Point 8 directly leads to this points: With the goal of longer holding periods and less time on hand, short-term arbitrage situations will have clearly less priority in the future. These situations require a lot of time and attention but turn over quickly. In order to gain a statistical edge, one has to look at many of these situations and I simply don’t have the time for this.

What could be interesting are longer term liquidation plays or specific spin-offs that are fundamentally attractive.

Re 10: Do more “shadowing” of investment managers/ bloggers  I admire ?

One issue with less time is clearly idea generation. In the past, I was very proud of the fact that most of my ideas were “original” which means I developed them mostly all by my own. This however takes time and requires a lot of reading and research.

It’s pretty clear that I can do less of this going forward. One way to “short cut” this is to look at what other people are doing. The biggest problem with this is in my opinion, in trying to follow ideas of managers that have a very different way and style of investing. Some readers might remember that I “shadowed” David Einhorn for some time but I didn’t understand what he was doing (and maybe he didn’t either….).

So I think it is pretty essential to focus on investors that have a certain degree of overlap with my preferred way of investing. Luckily there are some and I will use them much more as “Inspiration” than I did in the past. Just to be clear: i would never buy a stock just because another investor has bought it. But I intend to use this morethan in the past to see if such a stock could be potentially interesting.

One observation form my side: Maybe it is subjective but I have the feeling that in the blogosphere, there are not many good investment blogs left. Maybe I should go and search for new ones, but a lot of the old ones rarely post anymore.

But don’t worry: There will be some original ideas here in the future as well, but maybe not just as many as in the past.

Re 11: What should I do with the blog

Clearly, the blog requires some of my precious “extra time”. If I would end the blog, in theory I would have more time to look at investments. On the other hand, the blog and my great readers are a great motivator to keep going. Without the blog I don’t think that my portfolio would have performed as it has in the past.

What I will need to do is however to also reduce the blogging frequency and posts might get shorter. But we will see how this turns out as blogging still is great fun for me.

Summary – in a nutshell:

With less time available, I will need to change the way I invest in the future. Most importantly I will:

  • try to increase my average holding period further and slow down trading frequency even more
  • focus more on my core areas of expertise (e.g. financial services, Europe)
  • reduce research on high maintenance special situations
  • Shadow some investors that I admire most

P.S.: Maybe some readers wonder why I wrote such a long post after claiming I have so little time: This post was in the making for more or less 4 weeks 😉

 

 

 

28 comments

  • I am in a similar situation, with less time.
    For simetry reasons I think my SAA will go:
    -1/3 allocation to high-performing managers (1 or 2),
    -1/3 on ETFs (needs a bit of research too)
    -1/3 own selected stocks (max 10 positions)

    Of course, as part of most investing cycles, there will be a TAA which will determine deviation from the +1/3,1/3,1/3 (also because they ir value will evolve differently)

  • Hi MMI,

    zunächst: Bitte hör nicht auf zu schreiben. Mach mit deinem Portfolio was du willst :-p

    Wenn du Zeit sparen willst, wäre es vielleicht gut die Sondersituationen wegzulassen. Das dort gesammelte Wissen ist immer nur für einen sehr begrenzten Zeitraum nützlich und lässt sich nur wage auf einen neuen Fall erneut anwenden.

    Ansonsten halte ich auch eine hohe Konzentration nicht für sinnvoll, erst recht nicht, wenn weniger Zeit ins Research fließt. Buffett hat mal über Diversifikation gesagt: “It makes little sense if you know what you are doing.” Und ich weiß das du auch Kanemann und co gelesen hast. Demnach wissen wir alle weniger was wir tun, als es uns selbst zunächst bewusst ist. Entsprechend sollte die Diversifikation höher ausfallen als uns, verzerrt durch unseren Overconfidence-Bias, intuitive nahe liegt.

    Aber wie du dich auch entscheidest, besten Dank für deine tollen Berichte in den letzten Jahren und alles Gute. 😀

    David

  • To add another suggestion: take a break, both from investing and blogging. The Shiller P/E is above 30 and 79% of the VIC users state that they are “currently finding few bargain priced stocks”. Some well known value-investors are not doing well currently. It seems to be a period where it is hard to find any value. After there has been some type of market correction, I would be extra interested to read your responses and stock picks again, whatever combination of those 10 strategies you decide to apply. As a disclosure: I am taking such an investing break myself and currently only work on watchlists. Also, I don’t blog. It may be risky for the recognition of your blog to interrupt the postings for a while.

    • Hi Jake, thanks for the comment. However if you have read my blog in the past you will know that i don’t believe in market timing and i don’t think that the shiller p/e is very meaningful. As in golf, investing requires constant practice in my opinion. Plus I think there are always opportunities out there, so no break for ne.

  • My suggestion, having gone what I think you’re going through over the last 12 months, is to focus ruthlessly on getting your newborn to sleep properly. Buy a book (The Baby Sleep Guide is a reasonable one) on child sleep – there are a few things which are obvious once you read it but definitely not obvious if you’re having to figure them out first time. The reason I say this is because at least for me, the itch to read about stocks did not go away despite the newborn. And so you really do become focused on where to extract the time from….. It’s not a battle I can say I’ve won, but it’s definitely a battle I will keep fighting. Good luck!

    • Thanks for the book Tipp. I am currently reading a lot about this, so in theory we should be well prepared…..until you then are hit by reality. And i guess the itch will definitely stay…

  • I have very little time to research companies as well and investing in ETFs in Denmark is horrible tax wise.
    Instead I have spent time on finding good managers with a concentrated portfolio, long holding time and with a proven track record. Studying ideas from several managers proved to be too time consuming. I have ended up following only Longleaf Partners investing in the ideas from them that I can understand.

    • Longleaf Partners’ Website shows their consitent underperformance vs benchmarks in the last years (up to 15Y). If I would follow some fund manager, I would chose those consistently beating benchmarks. One of them Fundsmith

      • Consistently beating Benchmarks in my opinion is rather a hause for concern. Bill miller for instance beat the s&p for 15 years in a row but then screwed up so much that he was behind dir his whole carreer. You don’t need to beat a benchmark every year. You just need to beat it in total after a long period of time

        • For me, consistently beating bmk’s brings embedded the “small misses” (which is I link to some “std deviation” of the consistently beating the bmk’s). 😉 Fundsmith, is the clear example, among other ‘outperfomring’ managers I follow.

  • Hi- I was shadowing you since my first born…. 😀
    Just kidding…I dont copycat, but i do like to be inspired by others. the other way (Warren Buffet Advice to start from A, or using screeners) never worked very well for me.
    what i found working best for me is to have most of my portfolio in “Forever stocks” like Markel, Excor, BRK , the Brookfields etc.
    I sometimes have absolutely no time, or even worst- no energy at all. when the core of my portfolio is in Forever stocks, i am 100% confident that i can leave it unattended for a few months, even a year or 2, and everything be ok (the only thing i need to take care is reinvesting the dividends)
    anyway- Congrats!!!!! wishing you all the best!

  • HumbleInvestor

    Please carry on with your blog. Just sharing interesting thoughts, ideas and links helps a lot. As you suggest I think the decrease of the analysis during special situations would help already to save time! Be happy – I hope you carry on. All the best.

  • glad for the VERY positive changes in your life, congratulations!

    my suggestions:

    i) Concentrate to your core competence geographically speaking (i.e. Europe) but NOT industry wise. This approach will enable you to still be able to expand into different areas but probably not completely unfamiliar (i.e. a European Silver Chef might not have required the same amount of time to analyse as, invariably, you would have first (or second) hand experience with parts of the business or certainly a better idea of the macro-economic environment, consumer tastes, etc. it was operating).

    ii) Reduce the number of stocks in your portfolio. A report that I read a while back was claiming that the benefits of portfolio diversification start to dramatically diminish after 21 stocks.

    iii) Drop a company with the first red flag you see instead of doing the full analysis. Sure, this way you might miss something, or your initial assessment might not be 100% correct but there is a trade off between having limited time and accepting that some of your rejects might not be real ones and once in a while you pass a great company. Mind you, this isn’t a the worse of outcomes; it would have been much worse for example if some of the suggested trades ended up being not so great after all …

    iv) think about outsourcing some of the tasks that are time consuming but other people would happily do. I am more than happy for example to provide you with any Bloomberg data you need or forward you any broker research reports and I am sure many other followers would do the same.

    Whatever you decide to do I would certainly be looking forward to your new posts no matter how (in)frequent they are. I would also vote for making sure the old posts somehow remain visible; they will educate a great amount of people in value investing.

    Again, thanks for your time and effort on this blog for all those years. Your blog is hands down THE BEST blog out there in value investing.

    Matador

  • globalstockpicking

    Sorry to hear that we will get less of MMI in the future, but happy for the positive changes in your life! I think you touch on a lot of important points that we bloggers struggle with and I don’t have that much to add to your reasoning, it’s pretty well thought through already. Anyhow a small attempt to comment on your 1-11:

    1. I definitely think you should consider to go down to 15-20 holdings, you already have plenty of diversification at that holding level. With less time it doesn’t make sense to have so many holdings. Especially if we move to the next point..

    2. This is something I also thought about a lot. In my previous career my job was to find the best HF and long only managers in the world. So I have a pretty decent understanding of who is good out there, but I still haven’t allocated any money to these active managers. One problem has been that most of these guys know they are good and fees are very high for retail (if they even have a retail sleve). Even though I know they are good, they still run large funds, and large funds struggle to generate alpha after high fees, no matter how good you are. The passive route is also attractive to get away from the high fees, but that’s like saying that I don’t believe in my own investments enough, so I need to diversify from myself. Probably should do it, but it still hurts a bit 😉

    3. & 7. I think you are on to the same thing, something I also discuss from time to time. There are these investors that just go for the highest quality portfolios, Fundsmith is such a company I believe. Not sure if its proven to be a high alpha strategy either, but maybe doesn’t need to be high alpha, as long as there some alpha and you can spend less time due to easy understandable compounders..

    4. No, just no.

    5. The mechanic approach should be there to find what quicker what to look at, not to base investment decisions on. This is something I will explore more, I will go back to your old posts and peek at your BOSS model, thanks! 🙂

    6. Circle of competence I need is great if the aim is maximizing alpha. My experience is as yours, when we try to expand our circle, our first investments usually are not the best ones, that comes after maturing in the new investment area. At the same time, you are bringing up a very important point. Why do we spend so much time on these blogs if it’s not fun? I don’t think we can do it, especially since we do not profit at all from these pages. It HAS TO BE fun, so go ahead, follow your heart and researching what peeks your interest, not maximize alpha.

    8. You already have a nice holding period track-record, I don’t think you need to extend it further, its at a decent level already.

    9. If you read my blog I recently threw out all my high maintenance positions, I suggest you do the same 🙂

    10. Please don’t keep this best bloggers to yourself, I agree with you, it’s very hard to come by original ideas by really high quality bloggers. I have a few decent ones in Swedish that I follow, you and 1-2 more in English. The problem is that it’s too few compared to how often they post a good trade idea.

    11. Of course keep the blog, I think you have one of the very few quality stock picking blogs out there with an 8 year track-record of posting. Again, if you know other blogs with such a track record which still are very active, do let us/me know!

    You probably saw the post already, but I also did a summer reflection post recently. I feel I’m like a young adept to you, you have gone through what I’m doing now, 3-4 years ago already. Thanks again for all the great material you post!

    /Globalstockpicking

  • Boy or girl? Good luck 😉

    I think you should increase holding periods by focusing on stocks you can hold ‘forever’.. no turnaround stuff, cheap-but-dodgy, etc. which are high maintenance, only stocks where everything lines up in a good way. You can possibly mirror good managers and pick what appeals most. Focus on high ROIC, then price paid matters little over the long run. Immediately disregard anything on which you have any doubts. I myself also spend relatively a lot of time looking at the CEO, and I prefer (s)he holds a significant equity stake. If you have a smart CEO, you don’t need to watch everything they’re doing.

    I also wouldn’t buy anything for a position less than 5%, but that’s probably my personal view. Because when the stock doubles, you made 5%.. so what. And when the market goes down, everything goes down, whether you’re holding 5 or 50 stocks. If you have a really good idea with everything lining up, pound it hard I would say. You also already ‘know’ a lot of stocks pretty well by doing a lot of work, it’s not like you have to start from scratch.

  • Value Investigator

    I think a more concentranted portfolio would solve most (though not all of your problems). The only issue seems to be that you feel so comfortable owning 20-25 stocks.

    My impression is that your target return is around 15% per year, maybe a bit less in the recent time or if the return seeems very safe.

    By reducing the number of investments to 10, you could clearly focus on those companies that are most likely to hit your target, that you would really like to hold for the long term, that you feel really comfortable owning. That are really high quality.

    Furthermore you could „watch the grass growing“ and quickly steer the ship as your investment thesis no longer plays out. You could even have a positive year with a total loss of 100% on one position, as long as the other 9% perform as expected. Of course having such a looser is less likely. Eg you would probably have discovered the issues with silver chef more timely and only had a loss of 20% instead of 50(?)%.

    You would also need much less idea generation. And if you actually hold them for a longer term, you have less of a capital gains tax issue.

    I could image that with such a strategy you may have a turnover as low as 1 stock per year.

    I would never have thought it, but I currently feel pretty comfortable holding just 6 stocks (though quite equally weighed). I just have so much confidence in each of them and it would hurt so much to give up return potential for the next best ideas.

    On the other hand, these investments are mostly global platforms. With a lot of country and/or sector risk, that strategy may be too focused.

  • All stocks which have worked well for me were “inspired” by others. I’ll never criticize for stealing a good investment idea, as long as you post about it every now and then 🙂 I agree on the special situations, they take most of the time and are a good place to cut and save effort.

    All the best with whatever it is that keeps you busy nowadays!

  • sfsd@dsadsa.com

    “focus more on my core areas of expertise ” this key in my view.

    The most consistent performers I have met are specialist who understand an industry/sector/jurisdiction inside out.

    They know with high degree of confidence which stock, on a relative value basis are priced the cheapest or have the best management and strategy.

    Trying to learn a new industry every few months (travel series, watches, etc….) is a waste of time in my view. One is enough to make you loads of money and save you a lot of time.

    • I slightly disagree here. For long term success, especially for private investors, the key “secret” is staying power. In my experience, having fun doing it increases the staying power a lot. For me, looking at new industries is part of the fun. Maybe its different for others, but it is not always all about “loads of money”.

      • sfsd@dsadsa.com

        and what is staying power exactly?

        • Staying power is the ablity to stay invested over long periods of time. With long periods of time I mean decades. this is how the big money is made. I have seen too many people jumping in at a late stage bull market and then got shaken out by a crash. If you enjoy what you are doing, you will have less problems holding thorough difficult periods.

    • Looking outside of ones “core areas of expertise” out of curiosity, while having fun doing it, can yield in good performance. In this case look at his travel series and the following EXPE position.

      • Thanks. But a couple of the other travel stocks I looked at did much better (Tripadvisor, Travelport). So this was also a lot of luck….

        • I was more referring to your willingness and curiosity to look at travel stocks. Sure you could have picked others, but for instance TRIP valuation is mostly story driven (M&A) it seems, so doesn’t fit your characteristics. Fortune favors the curious 😉 Keep on and all the best

  • Thanks for your advise. Actually, looking back, my P&L comes from many different invetsments. I never have been a “fat pitch” typ of investor. And many of them were very specific,e.g. special opportunities after the financial crisis.

    With regard to blogging: If you want to make money with blogging, yu have to blog regularily. But you are right, in any other case, quality is more important.

  • All good thoughts. When you look back on your P&L history, you’ll likely find out that most of the P comes just from a few investments. Were there any common denominators that may allow you to identify similar ones in the future?

    Maybe you want to do a hybrid model. Split your portfolio in two. In one you take large positions in a few stocks that you have carefully researched. In the other you buy many with much smaller allocations, doing more mechanical or superficial analysis.

    Regarding the blog: I think the common advice to bloggers to “publish or perish” is bullshit. I choose blogs not on frequency but on the quality of their posts. Your posts are not terribly time critical. Whether you post weekly, monthly or quarterly, I’ll be happy.

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