Last week I was interviewed for GuruFocus. You can check out the full interview here, but I pulled out what I think are some of the highlights:
How and why did you get started investing?
I got started investing in a sort of roundabout way… actually, I owe it all to Google. In middle school and high school I was probably on Google for several hours every day – searching different topics and learning about whatever I was curious about that day (it was basically my equivalent to hanging out in a library and trying to read every book). I loved Google the search engine and how you could think of any question and then find the answer to it within a few seconds. And I also loved Google the company – its vision, its culture, its philosophy, its other products, and its success.
So when the financial crisis hit in 2008, I remember looking up Google stock on Google Finance. And it was trading somewhere around $150 per share (adjusted for stock splits) compared to a high of $357. I knew next to nothing about investing, but I knew enough to think to myself “there must be something wrong here” So I did a little research and it didn’t take long to figure out that (a) Google as a company was doing fine, but (b) we were in a recession – the worst recession since the Great Depression! So I opened a brokerage account and bought as many shares as I could using all the money I had saved from birthdays and summer jobs.
The stock must’ve gone up a bit soon after I bought it, because I then became very excited about investing and started doing research (using Google of course) about how to become a better investor. And if you want to teach yourself about investing (and you want to do it for free), then you’re pretty much required to start with the writings of Warren Buffett – who just so happens to be the greatest teacher of investing of all time, as well as the greatest investor of all time. In college I studied finance and economics, but I continued to read and teach myself all about value investing outside of class (most value investing concepts are actually never even mentioned in business schools), and I would research stocks and manage my portfolio in my spare time.
As it turns out, I still own all the Google shares I bought and have no plans of selling.
Describe your investing strategy
I’m a long-term value investor. What does that mean exactly? Well, first it means that I think that every investment decision absolutely must be based on the comparison of price vs. intrinsic value, and that intrinsic value must be calculated using conservative, fundamental analysis. And second, it means that I like to buy-and-hold for very long periods of time.
On a more tactical level, I really try to follow Warren Buffett’s strategy as much as possible: find stocks that are attractively priced, with good free cash flow characteristics, with good long-term prospects, and that I’d be happy to own if the stock market shut down for 5 years starting tomorrow.
What books or other investors influenced, inspired, or mentored you? What investors do you follow today?
The books that have inspired me the most are: The Essays of Warren Buffett, The Intelligent Investor, The Snowball, Berkshire Beyond Buffett, Thinking Fast and Slow, and The Millionaire Next Door. Investors include Warren Buffett, Ben Graham, Peter Lynch, and actually my parents – who have never had a finance course or went to business school, but have actually had remarkable success investing in the stock market and in real estate.
How has your investing changed over the years?
…I’ve realized the benefit of keeping a large percentage of your portfolio in cash. If you look back through the years – from Medici on to Buffett – the greatest “investors” have always been financiers and capital providers in times of economic trouble (in other words, they’ve always had very liquid wealth that they were able to lend or provide to others at very attractive rates of return during times of economic hardship). This is very powerful and highly applicable to investing in the stock market. Being liquid – when no one else is – allows you to take advantage of really attractive opportunities when they come your way.
Name some of the traits that a company must have for you to invest in. What does a high quality company look like to you?
The greatest company in the world would be a company that has a monopoly with an actually amazing product or service that customers love, that generates huge amounts of cash but needs very little cash to be reinvested in the business, is run by honest management and has an honest culture, and whose stock is selling for a reasonable price. I try to find these traits in any company I invest in. Analytically, things like high ROE, high ROIC, high margins, high FCF/low capex needs, and stable growth all hint that the above traits exist in a company.
What are some books that you are reading now?
I just finished a book that is literally called “How to Read a Book.” The book is meant to teach you how to think analytically out of books and how to get more out of what you’re reading. I’m currently reading “Sapiens“, which has gotten great reviews and has been highly recommended by Bill Gates, Obama, and Mark Zuckerberg. And I recently read “Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future” – it’s the first real biography on Elon Musk, who I think is one of the most fascinating businessmen today.
Any advice to a new investor?
My first piece of advice would be to ask yourself why you actually want to be an investor. Do you want to invest your savings for retirement? Do you want to get rich quick? Do you want to work for a hedge fund or run your own fund someday? Do you truly enjoy the work? Depending on the answers to these questions, active investing might not be right for you. For example, if you want to get rich quick then I think there are better ways to leverage your time. If you want to save for retirement then you should consider passively investing in an index fund. If you want to work for a hedge fund, then you should know that the industry is much, much tougher today than it was even 10 years ago – hedge fund fees have really come down and performance is very heavily scrutinized. I think its a really tough industry to be in right now.
If you truly enjoy the work, and analyzing companies, and pouring through financial statements, and thinking about business models and different industries, then you’re probably on the right path. If you’re one of these people, then I’d plea to you to (a) always compare value to price, and (b) always invest and think about the long-term. Not only do I think this makes for successful investing, I think it is the “right” way to invest – imagine if everyone on Wall Street thought this way, instead of trying to manipulate prices in order to make a quick buck
Finally, and this is my most important piece of advice, I would recommend that you read everything written by and written about Warren Buffett. Like I said before, he is the greatest investor of all time and the greatest teacher of investing of all time – surpassing even his own mentor, Ben Graham, in my opinion. Buffett has also written so extensively on so many topics and has given so many interviews on current events that you could spend almost a lifetime just reading his works.
So always keep price vs. value in mind, invest for the long-term, and read everything by and about Warren Buffett. Do that, and keep learning, and you’ll be a successful investor in no time!
Again, you can read the full interview here if you want 🙂 And make sure to take a look at The Essays of Warren Buffett.
by Warren E. Buffett, edited by Lawrence A. Cunningham
Buffett, the Bard of Omaha, is a genuine American folk hero, if folk heroes are allowed to build fortunes worth upward of $15 billion. He’s great at homespun metaphor, but behind those catchy phrases is a reservoir of financial acumen that’s generally considered the best of his generation.
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