Announcement

Collapse
No announcement yet.

My Approach To Investing: Finding The Next Amazon

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    My Approach To Investing: Finding The Next Amazon

    Like Warren Buffett have said, you don't need a dozen stocks in your portfolio, you just need a few good ones. Please be aware that individual stock picking is not for novice investors as 95%+ of the people will lose money. This is my approach and hopefully you'll find it useful.

    1. Pick disruptive companies with low market share penetration and high pace of innovation. Know what the possible TAM(total addressable market) is, and make sure it's valuation(not stock price as this does not matter) is very low vs similar companies with dominate market share.

    2. Look at the financials and listen to a few past conference calls as you need to see a vision for where the CEO is taking the company. Make sure you agree with how CEO is handling the company. A bean counter does not belong in a growth company. It's a red flag if the CEO is constantly trying to cheap their way out of a bind vs innovating and making bets that make sense.

    3. You have to be interested in the company. If you have zero interest or understand technology, then there's no reason to invest in technology. <--There is where most of you guys will falter.

    4. Do NOT look for dividends or profits. A truly innovative/disruptive company that is on track to gain marketshare quickly SHOULD NOT POST PROFITS. GAAP profits are probably one of the worst ROI for a growth investor. A 1 billion dollar GAAP profit for Tesla(which would at least stop all the naysayers) has a 220 MILLION dollar tax bill (22% corporate tax rate). Think about how many supercharging stations/service centers Tesla can build with 220 million dollars. How is this a good use of capital paying uncle Sam? Remember it is the growth's company job to invest so they can turn that investment into more $$$ down the road for the investor. Do understand what gross margins, operating margins, and cash flow is. The higher the gross margin, the higher the multiple they give the stock. A good way for news site to create fear is to tell you x, y, and z will never be profitable when they obviously have a strong positive gross margin. Growth companies will have a hard time being profitable as they should.

    5. If you are interested in the company, then great let this company be your hobby. Spend a few hours PER DAY studying and understanding the company. Go on reddit and find investor clubs for this company(or other forums). Look constantly at what the competitors are doing. The more you learn about the company, the more you can dismiss MIS-Information. There will be plenty since these stocks are very volatile and hedge funds love to fabricate news to make a quick buck from weak longs.

    6. Hold until said company becomes the dominate player and has over taken more than 50% of that TAM. Don't sell in between, don't worry about the up and downs, don't try to time anything. If there's a FUD(fear uncertainty doubt) storm which cause your company's stock to drop 10%, look at these as OPPORTUNITIES to BUY more(not be scared that it will drop more). When your company is at a 1-10% market share penetration, it's full potential is not even closed to being realized so who the F cares if it drops more. You think people who bought amazon at 45 before it dropped down to 38 is crying today when the stock is worth 3300? You know who are the real criers? Those who sold at 38 thinking it'll drop more. Or those who sold at 45 thinking it couldn't go any higher which leads to...

    7. There is no peak. No matter what they tell you, there is no peak. If your company is disruptive and is changing the industry, there is no peak UNTIL it stops becoming innovative and you see another company about to take its place. If the company has fast PACE OF INNOVATION, then it'll never have a peak. Yes, there will be clones, there will be thefts of intellectual secrets. But as long as the CEO doesn't spend their time suing but spend their time innovating, there's nothing to worry about. Whatever the Chinese will clone up with always be 5 years behind as long as your company continues to innovate.

    8. Apply first principal thinking in evaluating a company. This means break the product into parts, and break the parts into schematics. Analyze how this company is innovative from the ground up and see if it has the ability to be that disruptive player. If you were invested into Apple, then you had to understand the chips they were making, the software platform they were making, the batteries they were using, the manufacturing process they were using, and compare all of that to EVERYONE ELSE. It's not just "oh I like the iphone, let me invest".

    So why do people not win at this game? Because it's a very difficult game. Fear of losing money should be #1 when it comes to why people lose. Taking profit is probably #2 as investors probably owned Amazon one time or another but sold it way early. The rest is attributed to a lack of understanding of the company you invested it. Some just throw some money into a stock because x, y, and z told them. But you'll see these same people sell at a loss during a large FUD storm because they have zero clue. Granted some companies are not very easy to figure out.

    Example: Tesla has to be the hardest company to understand, and I have probably a thousand hours sunk into learning the company. Someone who has zero interest in technology will never be able to understand or care that a Tesla's FSD chip having the ability to inference 144 Trillions of operations/s(TOPS) while using 100 watts is 2x better than Nvidia's AGX's 300 TOPS using 500 watts. But understand information like this gives you the conviction you need to ride out the FUD storms. When people tells you how Volkswagen can very quickly become the next Tesla because how hard can it be? You think to yourself, can they really when a small Tesla team of engineers built a FSD chip that Nvidia still couldn't compete with? And it turns out Volkswagen ID3 can't be sold due to software issues, and each car must be manually updated via usb stick which takes 7 hrs per car. But this is first principal thinking approach. I study the chips, the infrastructure, the software, and the manufacturing process for every Tesla sector. This means I have to understand how their solar panels are made, who they are sourcing it from, what about the nickel for their batteries? Electrodes manufacturing process? How's the casting done for their cars? What about power walls? Mega packs? Energy software ecosystem? Man the list goes on and on and it's rough...hence take thousands of hours.
    Last edited by Singuy; 08-09-2020, 07:54 PM.

    #2
    ....

    I don't trade single stocks, so I am probably the wrong person to respond, and I don't mean to sound insulting so please don't take it that way, but boy does it sound like a sales pitch for a day trading seminar from a manic person on speed.

    Understanding the market, the CEO's history, the companies trajectory are all important.

    You really lost me on the tangent about having to understand software, batteries, and chips to invest in Apple.

    No one has a crystal ball and hind sight is 20 20. If you want to invest in single stocks, that is great, but still you're talking about years or decades to reap the true potential from that one basket of eggs.

    Comment


      #3
      Originally posted by myrdale View Post
      ....

      I don't trade single stocks, so I am probably the wrong person to respond, and I don't mean to sound insulting so please don't take it that way, but boy does it sound like a sales pitch for a day trading seminar from a manic person on speed.

      Understanding the market, the CEO's history, the companies trajectory are all important.

      You really lost me on the tangent about having to understand software, batteries, and chips to invest in Apple.

      No one has a crystal ball and hind sight is 20 20. If you want to invest in single stocks, that is great, but still you're talking about years or decades to reap the true potential from that one basket of eggs.
      1. Perhaps you mean sounds like a sales pitch vs a sales pitch for day trading as what I said is the opposite of day trading.

      2. Yes, take years to realize the potential. Maybe besides Kodak, most stocks doesn't quadruple overnight.

      3. The point of learning and understanding software, batteries and chip is to gain that crystal ball. Would you have sold Apple when the stock was 1/10th the value as today because every headline was about iPhone killers 10 years ago? It's not a tangent but literally the key for successful long term investing. If you understood the ecosystem of apple, you would have predicted the stock would keep on going up no matter what you read.

      Comment


        #4
        Translation ..... Research and understand companies that you invest in.

        Comment


          #5
          All I can say is, Im glad there are funds that invest in hundreds of different companies all at once. It makes my life a whole lot easier.

          Comment


            #6
            Originally posted by rennigade View Post
            All I can say is, Im glad there are funds that invest in hundreds of different companies all at once. It makes my life a whole lot easier.
            Ha true that. I worked very hard for my 150% yearly return. It was definitely not a free lunch.

            Comment


              #7
              Originally posted by Singuy View Post

              Ha true that. I worked very hard for my 150% yearly return. It was definitely not a free lunch.
              Exactly. It is possible to invest in stocks on your own successfully, but it's not easy. It takes a lot of work and many ongoing hours of research, as you've explained. The reality is that most people don't have the time or interest in doing that much work. They want their investments to be easier than that. I certainly want things to be simple and as hands-off as possible. If that means I get a 10% return instead of a 50% return, I'm okay with that. I don't have "a few hours per day" to study each company. If you do, that's great, and clearly you're doing it well. More power to you. Thanks for this post.
              Steve

              * Despite the high cost of living, it remains very popular.
              * Why should I pay for my daughter's education when she already knows everything?
              * There are no shortcuts to anywhere worth going.

              Comment


                #8
                Originally posted by Singuy View Post
                Maybe besides Kodak, most stocks doesn't quadruple overnight.
                It is funny you mention Kodak because I did think about you while reading about them dropping 40% over night.

                Also as far as general research, I've heard of morningstar.com , are there any others you recommend?

                Comment


                  #9
                  Originally posted by myrdale View Post

                  It is funny you mention Kodak because I did think about you while reading about them dropping 40% over night.

                  Also as far as general research, I've heard of morningstar.com , are there any others you recommend?
                  I don't use usual outlets to do research on my companies because typical outlets will tell you my companies are overvalued since IPO. I think morning star as of today think Tesla is worth 200 dollars or something. Like I said, you have to break the company down to schematics and start from there. This means plenty of AI conferences, car tear downs, battery lectures, microchip research, etc etc. Typical outlets just look at stupid metrics that just drives a narrative for the day. When Tesla is going up, cnbc will talk about how Tesla deliveries exceeded expectations. When Tesla is going down, they will point to no profits or low delivery numbers in Zimbabwe. Those are noise and distractions.

                  Comment


                    #10
                    Sin - what are your thoughts on big commerce? I believe its a shopify competitor that just went public.

                    Comment


                      #11
                      Originally posted by ~bs View Post
                      Sin - what are your thoughts on big commerce? I believe its a shopify competitor that just went public.
                      Trust and reliability are key for e-commerce which are enjoyed by the front runners. Copy cat companies generally have a hard time so unless something terrible happens to SHOP, I bet only on winners. However there's always a surge of the stock price because those who missed out on SHOp wants to get into the "next SHOP". It's a crazy way of thinking but that's what greed get yah. So as a very short term play sure.
                      Last edited by Singuy; 08-11-2020, 10:38 AM.

                      Comment


                        #12
                        I agree with your methodology when it comes to new innovation and secular growth especially under conditions of very low interest rates but it is not necessarily the only approach to do well in the market. One thing I will have to give you major credit for your approach to investing certainly requires much less portfolio turnover and a taxation advantage. I agree the knowledge of technology is critical vs in the 1990s where all you had to do is pick a subsector of new technology buy a basket and score big.


                        One of my investing colleagues that I have have been very successful over the years playing a mean reversion approach to highly volatile stocks and averaged a 44% return over a 20 year period (which I would think be a taxation nightmare) and a large percentage of my success has been made playing the commodity cycle and knowing the difference between quality and junk in very low priced stocks. I think the major thing to know is plenty of competence in the area you invest. To cite an example Crocodile Gold the owner of the world's highest grade Fosterville mine was a 9 cent stock in January of 2015 which was the precursor to KL on a 1/4 share bases (.36 cents) where it currently trades at $48 so its up 133 fold in 5 years 8 months.


                        I think where your approach has done extremely well relative to the rest of the stocks has been during a fed tightening cycle where I had a much more defensive position.

                        Comment


                          #13
                          Originally posted by Singuy View Post

                          Trust and reliability are key for e-commerce which are enjoyed by the front runners. Copy cat companies generally have a hard time so unless something terrible happens to SHOP, I bet only on winners. However there's always a surge of the stock price because those who missed out on SHOp wants to get into the "next SHOP". It's a crazy way of thinking but that's what greed get yah. So as a very short term play sure.
                          Thanks, was just wondering and thinking the same thing. The thought crossed my mind because of your thread title, and people are thinking exactly that.

                          Comment


                            #14
                            Originally posted by ~bs View Post

                            Thanks, was just wondering and thinking the same thing. The thought crossed my mind because of your thread title, and people are thinking exactly that.
                            Ah I see what you are saying. The thread was actually a request by James our mod. I didn't literally mean finding the next amazon which is impossible because there's most likely will just be one. Amazon like returns probably makes a clearer title(but not as sexy).

                            Comment


                              #15
                              Singuy's returns are nothing to scoff at. A discussion of the method to get there benefits everyone on the board.
                              james.c.hendrickson@gmail.com
                              202.468.6043

                              Comment

                              Working...
                              X