I did an interview that was published on Forbes’ website last week. For readers who have some spare time this week in between your Thanksgiving prep-work and travel plans, feel free to give it a read.
In the interview, we talk about my general approach to investing, some thoughts on a few companies including one of my investments (Tencent Holdings), as well as some opinions on active vs. passive investing.
I mention in the interview that my approach could be summed up by what Buffett said in 1996:
“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.
Over time, you will find only a few companies that meet these standards — so when you see one that qualifies, you should buy a meaningful amount of stock… Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.”
When I discuss my approach, I often get the question that goes something like this: Yeah, this is what everyone is trying to do, so what is your edge?
I’ve written before on the topic of edge, and how I think certain behavioral qualities can create much larger advantages for small investors than they might realize, but the short answer to this question is something I’ve observed over the years: everyone talks about these principles, but it’s very difficult to effectively capitalize on them. I think this is especially true for professionals in the money management business. Either their investors don’t allow them to implement a long-term approach, their routine isn’t conducive to long-term thinking, or their own psychological makeup doesn’t allow for it. Human nature is a hard trend to fight. This is true for most investors, and it’s certainly true for me also. I think being aware of the potential pitfalls of human nature and the various biases that we are prone to is a good antidote to our flawed behavioral tendencies, but it doesn’t guarantee success. As Munger says: “90% will always make up the bottom 90%” (yet as professional money managers, we all believe we are in the top 10%!)
Investing is an interesting game. Like chess, the game can be learned (especially if you’re an obsessive learner). But also like chess, there are some necessary innate behavioral characteristics that are necessary to reach the highest levels.
I think investing could be described as simple, but not easy. The merits of adopting the basic investment strategy of Buffett, Munger and those of their ilk have been widely acknowledged. Their principles have been exhaustively discussed. So, ironically (given the title of the interview), there are no investing secrets.
But, those simple and well-known principles are difficult to implement in practice. I have spent time thinking about why this is the case. I think there are a few reasons for this, but arguably the most important thing is what Munger talks about in the Art of Stock Picking: being truly able to sit and do nothing for long periods of time and to only act when there is really something obvious to do.
That also might be one of the most talked about concepts in value investing, but it’s also one that seems to be rarely practiced. There just aren’t that many great ideas, and practicing the Punch Card style is difficult in real life.
I talk about these general topics in more detail in the interview.
Have a Happy Thanksgiving!
John Huber is the portfolio manager of Saber Capital Management, LLC, an investment firm that manages separate accounts for clients. Saber employs a value investing strategy with a primary goal of patiently compounding capital for the long-term.