TII Philosophy
August 14th, 2009
Our philosophy at the Independent Investor is simple: Invest in great companies at a great price and the price per share is sure to follow. Our strategy is similar to that if you were investing in a privately held company. When you get past all the financial noise of Wall Street, and instead get to know management, products/services sold, financial well being, competitive advantages etc of the companies in which you invest, you can take confidence in your stocks just as though you bought a fantastic business on your own.
For this reason we focus our investment advice (and we buy what we advise!) on companies that generally fall under the small cap spectrum, since every large company once started as a small one. Not to say however, that we won’t suggest buying into Google or Apple if the price is right. Those are great companies, but too often the market is already paying a premium for those stocks which will pull down your longer term average return.
In addition, we firmly believe in a term we call “concentrated diversification”. This refers to buying and holding between only 5-10 stocks (sometimes 3 or 4 will do) at any one time. Most financial advisers will gasp at the very thought, but in our opinion, buying the whole market in the form of a mutual fund or ETF only gets you the same result as the overall market average. And as Independent Investors, we don’t want to be average.
For this reason we focus our investment advice (and we buy what we advise!) on companies that generally fall under the small cap spectrum, since every large company once started as a small one. Not to say however, that we won’t suggest buying into Google or Apple if the price is right. Those are great companies, but too often the market is already paying a premium for those stocks which will pull down your longer term average return.
In addition, we firmly believe in a term we call “concentrated diversification”. This refers to buying and holding between only 5-10 stocks (sometimes 3 or 4 will do) at any one time. Most financial advisers will gasp at the very thought, but in our opinion, buying the whole market in the form of a mutual fund or ETF only gets you the same result as the overall market average. And as Independent Investors, we don’t want to be average.
The whole idea behind investing is to maximize your return. The idea of owning only a handful of stocks is clear to us; it allows more time dedicated to following a few companies and therefore improve our knowledge and eventually our return. Warren Buffet became wealthy by concentrating his whole portfolio in great companies such as American Express, Coca Cola, Sees Candies, and Furniture Mart. Using his words: “your goal as an investor should simply be to purchase…an easily understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards–so when you see one that qualifies, you should buy a meaningful amount of stock.”
To sum it up, people generally buy in what they know, and the more you become familiar with a great business, the more confidence you’ll have in buying the stock not only as an investor but also as a partner of a great company.
Sincerely,
Brian Schenk
Creator,
The Independent Investor