Philosophy of Long Term Investing

There are a lot of different approaches to investing. You can pay particular attention to the daily influx of economic, political and business data and try to continually reposition your investments to benefit from this information. You can identify businesses that are selling at ‘cheap’ valuations or undervalued compared to their peers. I find both methods to be very challenging to successfully implement. The first method requires the investor to continually try and outguess the market on a multitude of economic data that is not forecastable. The second method can lead to as many ‘value traps’ as successful investments. The later must outweigh the former for success.

If you are so inclined to either method, I strongly suggest you look for evidence of several practitioners that have successfully implemented either strategy over long periods of time. I am not referring to successful investment company business models that have built very profitable profits (for themselves – please read Where Are the Customers’ Yachts? by Fred Schwed Jr.). I am referring to investment results that have delivered for the end client.

Charlie Munger often stated the value of inverting a problem to develop a stronger perspective on the solution. Image the result of investing your family’s wealth in 15-25 high quality businesses that you were able to purchase for an attractive price. This type of result is at the heart of two of Warren Buffett’s analogues. The first being the thought experiment of the stock market not existing and you having the power to invest in any business within your city or province. If you had the power to invest in any ‘local’ business, would you not pick the highest quality or best businesses? The second Buffett analogue is having a punch card that only allowed you to make 20 investments throughout your life. Once again, under this constraint, would you waste any of your opportunities on subpar businesses.

It is my experience that a vast majority of people want to own high-quality assets, but do not bother to ask the question “What is a high quality asset?”. This is a question that is worth investigating. If fact, it is a question that is worth truly trying to understand.

The attributes of a great investment actually boil down to only two things. If you can learn to identify and understand these two things, you will be far down the path of creating wealth. The two attributes are: