I've been investing for over a decade now. It has been a great ride and my approach has changed significantly over the years.
Here are 10 of the most useful things I've learned that drive the way I invest today.
1. It pays to be a careful observer of the world around you
In a world of increasing complexity some of the best (and easiest) investing ideas come from simply observing how things are changing around you.
2. "Basically, the single-most-important decision in evaluating a business is pricing power"
This single Buffett quote cuts to the heart of the investing problem more than almost any other. Pricing power comes from having a competitive advantage which can drive above average returns for decades to come.
3. Some risks aren't worth taking
Commodity price risk, turn around risk and public policy risk are three simple risks that need a lot of attention and can be easily avoided. This is better left to smart people with the time to burn.
4. The best investments can break all the rules
Some of my best investments, like Xero Limited (ASX: XRO) and Pushpay Holdings Ltd (ASX: PPH), have come from companies that break the traditional investment rules. These 'Rule Breaker' investments often look expensive but have strong advantages that mean they can keep winning.
5. Personal finance is more personal than it is finance
There are 1001 ways to invest your money. Very few will fit with your needs, personality and risk tolerance. Once you figure out the approach that works for you, you will be on your way to success.
6. To know when to sell you must know why you bought
I still find selling the most difficult part of the investing. Knowing when to sell is simplified by having a strong understanding of why you bought and when that thesis is broken.
7. If you don't understand a company, don't buy it
I've avoided a lot of lousy investments over the years because I just didn't 'get' them. In every case I felt dumb. However, most have since under performed or collapsed. Complex business structures have a nasty habit of masking a significant shortcomings and are often best avoided.
8. Foxes tend to be better investors than hedgehogs
There is an expression that "the fox knows many things, but the hedgehog knows one big thing."
Like the fox, the most successful investors I know read widely, actively look for different viewpoints and can see the world through different lenses.
9. "Make your portfolio reflect your best vision for our future"
This quote from The Motley Fool co-founder David Gardner forces me to think long term and to consider how a company will fit into my view of the world in 5, 10 or 20 years time.
10. Compounding is the holy grail and not just for investing
Perhaps the most important lesson after 10 years is the realisation that success, not just in investing, but life, comes from compounding.
We should compound everything that is great: knowledge, fitness, the skills we value and deep personal relationships. The process can feel painfully slow. However incremental gains, year-after-year, can grow into something incredible.
