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1 key investment lesson I’ve recently learned

One of the most important things that you can do as an investor is to keep learning.

‘Learning’ can mean a lot of different things. But to me it means soaking up various viewpoints, understanding that you can’t know everything and improving your investment behaviours.

I have recently been watching every Berkshire Hathaway annual general meeting (AGM) video starting from 2019 going backwards. I’ve reached the 2011 video, I imagine the next two or three videos will be quite interesting to watch with the GFC. There’s a YouTube channel called Buffett Online that has uploaded many of the AGMs in morning and afternoon session parts. So if you’re interested (bearing in mind each AGM is more than five hours) here are the morning and afternoon sessions of 2019.

Here is one key investment lesson I’ve recently learned (that isn’t necessarily from Warren Buffett alone):

Business flexibility seems imperative for long-term outperformance

These days it seems like competition and disruption is coming from almost every angle at market incumbents. Only businesses with true economic moats, brand power and/or a good product will be able to keep on going as usual in their industries.

There are some things that will never change. For example, customers want good products at great prices (and perhaps fast delivery, if applicable). That’s why businesses like Amazon, Costco and REA Group Limited (ASX: REA) have managed to do so well.

However, business flexibility could be the key to long-term outperformance.

Berkshire Hathaway has done incredibly well since inception, largely because of Warren Buffett’s investing ability. But these days it is shifting to owning and operating its own businesses. Aside from incredible management and having great integrity, I think one of Berkshire Hathaway’s key strengths is the ability to invest anywhere it wants, whether in new private or listed businesses, or in its own subsidiaries.

Just think of the biggest businesses in the world, mostly the FAANG shares (and Tencent as another example). Microsoft doesn’t just do computer software any more, it sells gaming services, cloud computing and so on. Apple was originally a computer business but it shifted to music & media, then phones and now is expanding into other areas like credit cards. Alphabet is a great example of diversity of operations. None of the FAANGs operate in a single industry. Amazon doesn’t just sell books online, it sells nearly everything.

On the ASX when you think of three of the best performing ASX shares in recent years, they are: Afterpay Touch Group Ltd (ASX: APT), Altium Limited (ASX: ALU) and A2 Milk Company Ltd (ASX: A2M).

I believe the ‘A’ team have shown it’s imperative for ASX businesses to expand overseas to generate strong longer-term returns. Altium and A2 Milk have shown that starting (or acquiring) new product lines can significantly increase the total addressable market of a business and improve profit margins further.

Afterpay still offers the same delayed payment service, but it has opened new doors by going into different industries such as travel and dentistry.

Foolish takeaway

The above investment lesson is why I’m more drawn to a business like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) these days because it can invest in almost anything it wants to, it isn’t stuck being a bank, a telco or a supermarket.

These top ASX shares are also among the few Australian businesses that are growing offshore, which is why they are worth watching for your portfolio.

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Tristan Harrison owns shares of Altium and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Altium. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of A2 Milk and AFTERPAY T FPO. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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