In investing I may use my personal allocation of assets outside my house but it will always vary with opportunities. My investing slant is pretty much seen through the lens of the ‘Don’t Lose Money’ via ‘Buying a wonderful business at an attractive price’. I don’t much care whether the business I’m looking at is real estate, a private business, a venture capital deal or a public business. I see it all through the same lens of the first Rule of investing.
By that I mean that investing success is all about finding some wonderful business that you understand and can see how good the deal is. I’ve been encouraged over the years to see that really great investors like Warren Buffett and more recently Eddie Lampert don’t seem to make much of a distinction between these groups either. Over the last few years Mr. Buffett has continued buying private businesses and Mr. Lampert may be building the next Berkshire Hathaway on the back of Sears/Kmart. (Look up his track record for a view of another 28%-for-20 years guy who follows Buffett).
If you want to be a successful investor do what the best investors do: Look for a business you understand and that you can get at a bargain price. From that point you can depart depending on how hard you want to work. Mr. Buffett and Mr. Lampert work very hard to allocate billions of dollars for their clients/shareholders. Trust me, making 20% plus on anything over $10,000,000 is hard enough, on $30 billion it’s a miracle.
Following that simple first Rule of investing (or failing to follow it in my impatient pursuit of riches), from time to time I’ve been deep in real estate, venture capital, private business, or public businesses. In years past, all four areas of investing required a lot of work to keep up. Today, only the first three do. Now, because of the internet and changes in the laws, the public markets take very little time for a small investor, so that’s where I am these days with most of my investing dollars.
If you stick to public businesses the information is so available and the people running the best businesses are so good that the only real work you have to do is know when to sell: when a great business you own gets ahead of itself in price as Mr. Market’s manic euphoria for anything going up kicks in. That’s the kind of problem most speculating traders would love to have, but then they like to work and are trying to make a bazillion dollars.
So final advice: I will take out money and stick to public businesses simply because it’s so much easier to let the best business minds in the world work their butts off to make you money than to get all involved in private stuff or real estate that you have to manage yourself. Don’t be afraid of putting the vast majority of what you are investing into a few great businesses and then watch them extremely closely. If the big mutual fund managers bail on the business investment then you have bail with them and get into Cash. It’s the best low risk high return strategy I know. Then sit on your cash until the you see another great business go on sale and then load up the truck.
Phil Town is author of the best-selling book, RULE #1. http://www.rule1investor.com
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