Investing With A Long Time Horizon

Jim Cramer Tweet 1/22/19

The above tweet from TV personality Jim Cramer caught my eye because his message ties into a future blog post that I had planned. That the companies he singled out are ones that I am invested in cemented my decision to pull forward that post to now. (I am not a financial advisor and you shouldn’t take investment advice from strangers on the Internet. Also, have you read my other posts?!).

Whether you agree with either part of his tweet is not relevant to the larger concept that I think is valuable to think about: taking into consideration a company’s ambitions, both stated and implied, as part of a long term investment strategy.

Personally, my financial strategy is what might be called a barbell strategy. Essentially, this involves separating your money into 2 baskets – one conservative and the other risky. Definitions of conservative and risky will differ from person to person, as will the degree of safety and risk they choose to take on. For me, this means keeping a portion of money in cash and a portion invested in companies that some advisors think are doomed or at least vastly overpriced.

The reason I am willing to take on such risk is simply that I believe investing needs to be worth it. If I’m going to be putting money and faith into a company that I don’t work at and therefore whose success I cannot exert any influence over, it better be one with big enough ambitions to yield a multiple on my investment over my chosen time frame.

Said another way, failure looks the same for all companies (investment goes to zero), yet success has as many different looks as there are companies to invest in. For this reason, I spend a lot of time researching potential investments and forming an idea of what their success might look like. Finally comes the longer phase of monitoring the company to see if their actual decisions confirm that the path I had envisioned is indeed the direction the company is headed. 

This strategy oftentimes requires a lengthy investment horizon that involves starting off small and adding to the investment as events play out that confirm the company is on the expected path.

Tying back into Cramer’s tweet, if you look back over the past few years you can probably break the progress of these companies into steps, stages, chapters, any term that helps you break a long term trend into smaller parts.

There was likely a time when you began to notice people around you buying iPhones in place of their previous phone, in numbers too big to ignore. Then you may have noticed almost all renders of phones in commercials or printouts were designed to look like iPhones, and later as the term “iPhone” basically became a substitute for “cell phones” in people’s vocabulary.  For me, each of these stages corresponded to when I would add to my AAPL position.

Amazon had a similar story; people you know started buying a bunch of products they used to purchase in stores instead through Amazon, eventually upgrading to a Prime subscription. Along the way you may have noticed the overwhelming presence of cardboard boxes with the Amazon logo spilling out of recycling bins and trash cans everywhere. Over the last few years it has become increasingly popular for people to get their groceries delivered, and just last year Amazon purchased Whole Foods. Another step along the path.

The Tesla story is about the transition from vehicles powered by gasoline to electric vehicles (ICE to EVs).  Of the three this one is earliest in its shift, as Apple and Amazon have now built customer bases so massive that the focus has likely shifted to building additional services to keep customers tied in to their platforms/ecosystems.

Confirmation of the Tesla story moving forward would include a noticeable increase in the presence of charging stations for electrical vehicles in parking lots or city streets, and other manufacturers transitioning models of their vehicles from gasoline powered to hybrid to EV.  Some of these steps have already begun but will likely become impossible for anyone to miss in the years ahead.

You would have to believe there are other shifts like these taking shape around us. Depending upon the industries you follow or work in there might be a long term behavioral shift taking place right in front of you. For investors willing to take a long term view it might be worth thinking about which companies could be the next to experience their iPhone or Prime moments.

Author: clownmouth

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