Today, I talked to David Schneider of the Nomadic Investor. The Nomadic Investor is a research site that finds business and investment opportunities worldwide. David talked about having patience and not chasing investment opportunities, what he expects from an investment, as well as why young people should not start out investing in stocks
1. How did you get started investing? What is your background?
I have been investing since high school. I trained as a commercial banker, studied financial services in London and worked as a research associate in Tokyo covering consumer electronics stocks. I am the co-founder of two long/short equities hedge funds. Currently, I am more of an entrepreneurial investor or an entrepreneur who invests in stocks occasionally.
2. Describe your investing strategy.
Opportunistic! If I recognize an excellent investment opportunity, or in other words mispriced bet, I commit money. I am not chasing or forcing ideas but wait for them to show up at my doorsteps. I am fairly busy with my day to day job, writing books and working on my IT business, which I feel give me a strategic advantage over other full-time money managers.
3. What drew you to that specific strategy?
Trial and error. Like most of us, I played the markets a lot and lost a lot of money in the process. Whereas certain investments I did were consistently successful. So I learned from my mistakes, especially I understood that in investing successfully, more activity doesn't mean better performance - on the contrary, it could be outright harmful.
4. What books or other investors influenced you?
Of course Warren Buffett (Trades, Portfolio), but it is only because he is the most visible and most accessible of them all. (That's of course not a bad thing) Seth Klarman (Trades, Portfolio), Benjamin Graham to name a few others. "The Intelligent Investor" is a must read, but I also love biographies of famous investors and business people in history.
5. How has your investing changed over the years?
Less speculative, less active, less trading around. More patient and waiting.
6. Name some of the things that you do that other investors do not.
Difficult to say, because I don't know what others do . I can tell you, that my day to day routine is very different to professional money managers. Their job is to find ideas on a daily basis and justify them to a group of other investors, and of course to their clients. After all, that is why they are getting paid those high salaries. But often it shows in their work and their results, that they are coming up with mediocre ideas because they have to. I do not have to do this anymore. I can wait and let ideas come to me.
7. Where do you get your investing ideas from?
Experience and personal preference. It à Âs like a funnel. You build a wealth of knowledge about different industries and businesses over the course of your career, through research, studies and conversations with other investors and entrepreneurs. In the process, you automatically filter out those industries and companies that appeal to you. Finally, you let the market dictate which industry or company you can invest in - unfortunately, it is not the other way around. Recently I bought German bank shares - I personally dislike the banking industry. But, I know it well enough from personal work experience and the network I have in Germany. With recent market events pricing them for pending bankruptcy, I felt very comfortable to commit money.
8. Do you use any stock screeners?
No!
9. Name some of the traits that a company must have for you to invest in.
I need to be familiar with it; know its business model, its assets, etc. Preferably its history, management and industry dynamics in different economic cycles. The longer I know the company, the more comfortable I feel to invest if the price is right. So nothing magic or earth shattering new. It à Âs common sense. If you told you me today about a fantastic company or investment opportunity I have never heard of, I would not invest out of pure principle.
10. What kind of checklist do you use when investing?
I have devised a basic checklist, and the previous point discussed above has a key place right at the top of my checklist. In the end, any checklist follows an 80/20 principle, i.e., if the first two points do not apply the rest of the checklist, is pretty much useless.
11. Before making an investment, what kind of research do you do?
I check up on some recent news including core accounting figures and market projections. I try to understand current market dynamics and circumstances. I want to know whether the market has some valid points that justify current prices. I do talk with other investors or industry experts about specific companies, just to check if I have missed anything.
12. What kind of bargains are you finding in this market?
Markets are volatile, investors and speculators consistently make big mistakes, so there is a constant stream of ideas. Most of them useless for me, and as I said, I am very picky about what gets into my portfolio. If I do 3 to 4 trades a year, I am more than happy.
13. How do you feel about the market today? Do you see it as overvalued?
Of course, it is overvalued. It usually is - especially for me. These days it is massively overvalued. Too much money is chasing very few ideas. So many market participants are desperate and hungry for yield. Some of them go all the way and take on risks they will later regret. Same old story - nothing to see here.
14. What are some books that you are reading now?
I have been reading up on index funds, John Bogle's books; Bogleheads, etc. My next book is about Index funds and ETFs, so I am collecting as much material as possible.
15. Any advice to a new investor?
New investors, especially teenagers and college students, should not start out with stocks, funds or any other financial products right away if they are interested in long-term investing because they wouldn not learn much - just trading some fictitious papers back and forth and that is more gambling/speculating than investing. They should buy old fashioned tangible assets first. Any asset that supposedly makes them money, even if it is just a little. Warren Buffett (Trades, Portfolio) started out investing in a pinball machine or even beaten down Rolls Royce. Just collecting the dimes from the machine or collecting the rental price for the car taught him a lot about investing. I am sure he learned, even more, when the machines broke down and he to spend money to fix them. People new to investing would quickly learn the real dynamics of investing; the relationship between the price they paid and the value they received, plus all those unexpected problems they have never thought of. Investing in a simple website/blog/ internet business would teach them a lot more than filling out an electronic order form with their online broker, typing in Microsoft (MSFT, Financial) or Facebook (FB, Financial) and click the buy button.
Disclosure: No position in the stock mentioned.
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