1. How and why did you get started investing? What is your background?
I have a background in finance and a masters in real estate development. I started investing after reading a series of books (The Rich Dad, Poor Dad series) before getting into college 10 years ago, but it was too basic. Warren Buffett (Trades, Portfolio) helped with the rest.
2. Describe your investing strategy.
I am kind of a contrarian between contrarians (Hope this is still useful after this answer. Do not worry, I will give you a stock tip at the end).
If you are going to be a passive investor (you have a job and a family), the answer is clear: Vanguard S&P 500, set it and forget it.
I think that if you are going to be an "active" investor, also known as an enterprising investor (like it is defined by Benjamin Graham), you need to have the energy, time and patience to do it. And do not forget the cash to make it worth your while.
I have done this from the beginning and have moved slowly from stocks to other kind of assets. Why? Stocks are a kind of asset that is really hard to move in your favor, especially if you do not have a reputation or capital (or both).
Most people do not know this, but most of small businesses do not sell (small restaurants, shops, etc) because you need to be sophisticated and have the time and knowledge to run it. And when they do sell, more than half are sold with owner financing. It is not weird to see 80%-plus owner financing in these cases. The avarage multiple of sales is 2.8x. Nice!
Here is a quick example of a real estate deal running right now. In Philadelphia, there is a good demand marketing for rentals. We are building them. Then we stabilize the properties (rent them for six to eight months) and then the bank lets you get a commercial loan (based on cash flow). So you build for 70 cents on the dollar, then you get the loan for 90 cents on the dollar. That means that in something like 18 months, you get your capital back and then some, while you have an cash flowing asset that appreciates.
3. What drew you to that specific strategy?
Constant education (on stocks, however, you need a system that fits you!)
4. What books or other investors influenced, inspired or mentored you? What investors do you follow today?
I am allways trying to read something new.
- Buffett books always! I must have read "The Snowball" three times.
- Keith Cunningham
- Van Tharp
5. How has your investing changed over the years?
I go to "less known places" to find value. Less competition that way.
6. Name some of the things that you do or believe that other investors do not.
I think we get distracted on the complexities of the game (ratios, calls, more info) instead of looking for easier games to play.
7. What are some of your favorite companies? Where do you get your investing ideas from?
Lately, because of the nature of what I do, it is about networking. Most people do not value networking capital, especially introverts like me.
8. Do you use any stock screeners?
I love net-nets because they just make sense, but is has been a very bad five years for net-nets.
9. 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?
Coca-Cola (NYSE:KO) is anybody's dream. I think we all know these companies, but it is about price. I need to "understand" them.
10. What kind of checklist do you use when investing?
It depends on the strategy. On net-nets, I do have one. But in general, it is:
1. Understand the Business
2. Sustainable Competitive Advantages
3. Able and Trustworthy management
4. Bargain Price and Margin of Safety
I will show you an example below.
11. Before making an investment, what kind of research do you do? Do you talk to management?
Yeah! If possible, unless you are running a strategy like net-nets, which is more like a system. Even in that case,networking is important.
12. What kind of bargains are you finding in this market? Do you have any favorite sectors?
Invest in what you know, right?
I am from Ecuador. I recently moved back too. It is a tiny country, but there are good businesses with monopoly like advantages, such as Corporacion La Favorita (the Ecuadorian Wal-Mart).
|Ticker Guayaquil Stock Exchange||SLF|
|Dividend Yield||20.06 (May 30, 2011)|
|Quote updated on||Sept. 16|
About 50% of book value!
This is the kind of company a young Buffett would buy. There are a lot of these opportunities if you are willing to turn enough rocks.
Why are you seeing this opportunity? It is because the financial statements are really hard to find.
So what is the catch? Political issues, communist tendencies, trading volumes around $2.5 million a month. Enough for small investors but not big funds.
So why invest in them? They are cheap! If you understand the political pendulum, it just makes sense.
Do not forget, no one is going to compete with Corporacion La Favorita because they have an infrastructure already in place. I would talk with management (sons of the founders, great family), they even have relatives working in important places in Wal-Mart in the U.S., so you know they know what they are doing.
13. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?
There is always oportunity. Stick to what you know. Invest for the long term
14. What are some books that you are reading now?
I am re-reading "Buffett Beyond Value" by Prem C. Jain.
"The Rational Optimist: How Prosperity Evolves" by Matt Ridley
"Understanding Michael Porter: The Essential Guide to Competition and Strategy" by Joan Magretta
"The Power of Habit: Why We Do What We Do in Life and Business" by Charles Duhigg
"How to Lie with Statistics" by Darrell Huff and Irving Geis
"The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Management of Innovation and Change)" by Clayton M. Christensen
"Business Adventures: Twelve Classic Tales from the World of Wall Street" by John Brooks
15. Any advice to a new value investor?
- Read everything that you can by Van Tharp (Even though it is mostly about trading, you will need it for value investing).
- If you do not have a good chunk of cash, start a business.
- If you just thought ,"I have no time for starting a business," then you are not an active investor, you are a passive investor.
- Always read and study like you are investing real money, eventually you will. But if you are a genius with no capital or contacts, you do not get to play.
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