- Value, concentrated investing – While many seek the diversification of the full market portfolio, I speculate on a few investments I believe to be a great value. Growth companies have historically underperformed value stocks as investors systematically overestimate growth. Earnings growth regresses to the mean, and value typically is a better investment. A purely quantitative black-box strategy could evaluate the entire market and find value stocks. However, I am examining a company’s strategic position, financial statements, and conference calls. A portfolio of a small basket of investments that are in different sectors will get most of the benefits of diversification.
- International exposure – Most investors in any given country have a home bias. While there are barriers in understanding and in regulations to investing in other countries, it seems excessive. I seek to invest a high percentage of my investments outside the United States in emerging markets. In the cases where I cannot buy individual stocks, I buy exchange traded funds that give exposure to a particular country or region.
- Liquidity is not all that important – Most of my investments are fairly liquid at this point in time since I am unable to invest in private equity and venture capital. However, I am willing to make illiquid investments if I am compensated for that illiquidity. You can maintain liquidity on tap with credit lines at a very low cost to maintain.
- Leverage – At this time, I have cheap access to credit to borrow against investments in my portfolio. While leverage increases risk, I am in a great position to assume that higher risk. With a greater base of assets, my return on equity will be higher assuming my asset’s returns are greater than my borrowing rate.
Thanks to Dave Albrecht for asking me to write about my investing philosophy
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