So, here is my new year’s resolution: turn over more rocks this year. A LOT more.
The process of investing is pretty much just looking for interesting things to do. The more situations you look at, the more chance you have of running into an interesting idea. I have to admit that in the past year or so, I have not been digging a whole lot in obscure areas. Buffett has said that you can still make 50%/year returns (he said this back in 2006-2007 when everything seemed expensive), but that you have to really dig and turn over a lot of rocks in places where others aren’t looking. He often mentioned how he went through the Moody’s manual looking at each company one at a time. When someone asked him with so many companies out there where should they start, he said start with the “A”s.
I’ve had my share of doing that; going through one-by-one all the stocks in the S&P small cap index, in some of the micro-cap/nano cap indices and going through everything in the Walker’s Manual (whatever happened to that organization?). I also went through the Japanese “Shikihou” (Japan listed company handbook which is like the S&P or Moody’s handbook with all listed companies and relevant statistics) a few times over the years.
It’s actually a lot of fun to look into those tiny companies, and it often doesn’t take a lot of time to look at, say, compared to digging into the 10K of AIG or Citigroup.
But I haven’t done a lot of digging into obscurity over the past couple of years, mainly because so many of the big large caps seemed so cheap and interesting to me. I still think there are a lot of decent buys in the large cap area and I still do like many of the financials. But we can’t put all of our stock into financials, nor should we sit around and wait for the big blue chips to go up.
I do think it’s a great time to be digging around again so I will specifically allocate a lot of time to go through tiny cap stocks, one by one. I hope to look at thousands of stocks over the next few months.
One thing I’ve found over the years that I should put more into practice is that the best ideas are the ones you find yourself. I’ve been reading all sorts of blogs and websites on stock ideas for years and I have to say that it is very rare that I get anything useful out of them. I still look at them for informational purposes (to know and understand what people are looking at and thinking), but I don’t remember the last time I got any good investment ideas from them.
Guys like Buffett did their own work looking for their own ideas, and Michael Burry (the hero in the book “The Big Short”) does the same thing; he looks for his own ideas. Many of the best investors all seem to say the same thing. I can’t prove it, but I would guess that the guys that act on other people’s ideas probably don’t do as well over time as the ones that find their own.
This is not to say that we should ignore the great investors and not listen to good ideas. We should all keep our eyes and ears open to any interesting ideas wherever they come from. But one shouldn’t expect to generate decent, above average returns from just jumping on second-hand ideas.
Anyway, just as a salesman has more chance of generating a sale the more calls he makes, we value investors have more of a chance of finding something interesting the more things we look at. This will be a big theme for me this year.
Let’s see how this goes. I hope to post some interesting things I find on this “journey”.