My investment process

Idea generation

I generate new investing ideas mostly through reading investment write-ups online, talking to other investors, occasionally going through screens of companies that meet some high-level criteria I look for, and general learning (like reading books and news) that sometimes leads to an idea. I like getting ideas from others (via investing websites, blogs, and friends of mine) because it’s a quick way to get an overview of the business and industry. Thus, my research doesn’t have to start from scratch. Between investing websites and blogs that I follow, I look at several hundred investment write-ups per year.

Depending on how well I know the industry, my research for a new company generally takes anywhere from a few weeks to several months. Thus, in an entire year I only have time to get to know a handful of companies really well. This forces me to be very picky on what companies I spend time researching. I want to know a small number of high-quality companies very well, as opposed to knowing less about hundreds or thousands of companies.
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Time Arbitrage as a Competitive Advantage

In the 1950s, the average holding period for stocks was over seven years. Not surprisingly, that number has been falling ever since—current estimates put the holding period at around 4-8 months.


The vast majority of investors are focused on the next quarter or the next year, which is mostly just noise in terms of what really matters to a company’s value. It’s not uncommon that a company’s terminal value is 70-80% of what it’s worth today. If how a company will perform 10-20+ years from now makes up most of its value, then the most important factor when choosing companies to invest in is how durable their competitive position is over the long-term, which often has very little to do with near-term results. Even so, it’s not a surprise that so much of Wall Street focuses on the short-term.
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Lessons from Bill and Melinda Gates

If I had to sum up history in one sentence it would be: Life gets better—not for everyone all the time, but for most people most of the time.” – Bill Gates

It’s easy to look at the news on a daily basis and think the world is getting worse, but that couldn’t be further from the truth. Unfortunately, the news only reports on what gets the most viewership, and reporting “US murder rates down 1.6% this year” or “worldwide childhood mortality fell this year like it always does” aren’t nearly as visceral and impactful as the KKK, drug overdoses, Middle Eastern wars, or even our president’s tweets.

Not that the world is perfect—far from it—but I think it’s important to be reminded once in a while how good we have it compared to everyone else in human history. Similar to my blog post, Is the world getting better or worse?, reading through the annual letters of the Bill and Melinda Gates Foundation was a healthy reminder of the amazing progress this world continues to make, despite the non-stop negative headlines.
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Lessons from Larry Page and Sergey Brin

Reading through all of Jeff Bezos’ annual letters inspired me to read through other letters from very smart people—and Larry Page and Sergey Brin from Google were the first choice. Besides using a bunch of Google services on a daily basis, I’ve never followed them as a public company so I learned a lot reading the letters. The main thing I came away with is an appreciation of how Google has evolved from just a search engine to a smorgasbord of many products and services that all ultimately feed into the search funnel.

If you invested in Google in 1998 (as a private company), you almost certainly would have been betting on their ability to build a search engine. In fact, you can read Larry and Sergey’s original paper from 1998 describing their Google prototype and, not surprisingly, there is no mention of Gmail, Analytics, Chrome, YouTube, Maps, or Android. It’s interesting that, in my opinion, Google’s expansion into so many products would have been impossible to predict, but looking back from today it all seems rather obvious.
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How to Better Align Money Managers With Their Clients

I believe my skills as an investor (along with most investors) will improve over time. Each year I learn about more companies, more industries, and a wide variety of topics that aren’t directly related to investing. That knowledge compounds over time. I am a far better investor than I was three years ago and I expect to be able to say that same thing at any point in time going forward. Thus, the below chart gives an idea of what my investing skills should look like over time.


If I somehow managed a fixed amount of money over my entire life (say $1 million), I would expect my returns to slowly increase over time, maybe plateauing around 20% or something like that. But managing a stable amount of money isn’t realistic. The amount of money I manage will slowly increase over time (either by getting new clients or by growing my own net worth and current assets under management). Managing lots of money acts as an anchor on returns because the opportunity set becomes smaller when managing more money. An equally skilled investor will earn higher returns managing $1 million than another managing $10 billion. Thus, below is the chart showing return potential as AUM increases over time.
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Is holding cash a good idea?

Over long enough time periods, the stock market has always performed well. There are plenty of bumps and bruises along the way, but the overall trend has always been up and to the right. In fact, the worst total return in history over a 20-year period was +54%. The worst 30-year return was +854%. We’ve all seen images like the one below that show this never-ending march up.


Even when markets are high, as many people believe them to be now, the future expected returns from the stock market are still positive. I think this is an important distinction because I’ve talked to many people who think that because the market is high a crash must be inevitable and thus future returns will be negative. If the market is in fact too high right now (which we won’t know for another 5-10 years when we can look back), that means that future returns will be lower than historical averages—but not negative. Though I don’t put much value in people’s opinions who try to estimate future stock market returns, almost all of the estimates I’ve seen are in the low to mid-single digits—call it 4%. 4% isn’t great, but it’s a hell of a lot better than earning 0% in cash.
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