Investing Strategy
A detailed description of my investing strategy.
5 minute read
My investment strategy is centered on 3 pillars: value, quality, and search.
Value
A stock is a fraction of a business, which means its intrinsic value is represented by the value of the business.
Since people can buy and sell stocks based on emotions, stock prices don't necessarily reflect their true value at all times. This creates temporary opportunities to purchase businesses at significant discounts to their real worth. This results in a disproportion in the risk and return of an investment.
In essence, my goal is to seek out these opportunities, with a focus on excellent businesses.
Quality
An excellent business has the following characteristics: competitive advantage, high entry barriers, and durability. I emphasize the durability factor because if it's not possible to estimate with a high degree of certainty where the business and industry will be in 10 years, then estimating the value of the company is very challenging.
An example of a company with a strong competitive advantage but a low degree of durability is Meta. Currently, nearly 3 billion people use their products; however, in just 4 years, TikTok managed to reach a billion users in a different format than Meta. Meta adopted and incorporated Reels into Instagram and Facebook, however, the profitability of this format is yet to be confirmed. Today, it's very difficult to say with a high degree of certainty how the company's products will look 10 years from now, and if they will continue to be used like today.
Search
My opportunity-seeking strategy is based on looking where other investors are not. This means looking for opportunities in alternative markets to the US and companies too small for institutional investors. For example, in recent years, I have focused on the Mexican market, where I found that on average, the price-to-business-value ratio is much better than in the United States. Today, I focus on analyzing small and medium-sized companies, where there is a higher probability of inefficiency between the company's price and its real value.
Lastly, I "play bowling with bumpers" by analyzing investments made by other successful investors and cherry-picking from their portfolios. This works as a filtering system, where I have the benefit that these investment ideas have already passed through very intelligent minds.