“Returns and Lessons Learned” wasn't self-flagellation; my objective was to highlight how mistakes planted the seeds for an evolution in my investment philosophy and research process.
Great stuff, thanks Alex. I've been thinking a lot about this recently, especially as I've learned more about someone like David Gardner's approach (in comparison to learning the "Buffett methodology" originally). In the end, I've landed in an extremely similar place to you. Very grateful to have crossed paths! Here's to some big opportunities in the future, as we wait patiently :)
I wonder why you prefer this vs say, 90% passive and 10% the stocks you like? or 50/50? I understand single stocks are fun but do you really need to be 100% in a concentrated portfolio?
Thanks Alex for sharing your investment philosophy !! I have been thinking a lot recently with regards to appropriate philosophy for my own portfolio based on my emotional traits and this post was right on time to help me with that ..
Alex - As usual, wonderful job of expressing your investment philosophy so clearly. You have helped me shape an approach that is truly long-term (so many folks just pay lip service to the concept). I had the daunting task of allocating some of my family's assets into publicly traded securities (we were fortunate to monetize our family business several years ago at a value that few of us could have imagined), and your posts have been a wonderful resource and a "sanity check" on my previous ideas about investing for multi-generational family members.
That said, I would appreciate your thoughts on two ideas/concepts:
1) I think FCF/Share growth as the best proxy for the intrinsic value growth of a business. If you think about what is included in FCF/Share, it includes so many important value drivers - revenue growth, margins, ROIC, balance sheet management, etc. So if I had to distill my approach down to the most important metric, I look at long-term FCF/Share growth.
2) I tend to reverse-engineer DCFs to back-solve for the required terminal multiple of FCF that I need to earn my cost of capital (I use 10%). So my FCF growth estimates and the 10% discount rates are my inputs, and the terminal multiple is my output. I feel that the actual terminal multiple is unknowable, so I want to make my decision as easy as possible, without any false precision. It is like an over/under. If I think the actual terminal multiple will be greater, then my IRR will be > 10%, and vice versa if I think that actual terminal multiple will be less.
Curious to hear your thoughts.
You are my favorite writer on Substack! Enjoy reading your investment philosophy and research process.