My Quality Investing Journey
The Art of Quality Investing
Since 2008, I’ve been active on the stock market, specifically since early 2008 when the financial markets seemed to be smooth sailing.
That moment, just before the markets plunged in September, was probably the worst time in history to start investing. However, going through the turmoil of a market crash of that scale is a valuable experience that shapes your future in investing. I don’t get easily rattled anymore.
In the spring of that disastrous year, bank stocks were among my very first stock purchases. I am not embellishing this to dramatize my introduction and tie it to a beautiful story about the resurrection of a battered, inexperienced investor. Unfortunately, it really happened.
We all know the global dramas that unfolded later that year. The financial system teetered on the edge of collapse, and an unprecedented wave of panic swept through the markets. Governments had to step in to stabilize the situation and prevent a total breakdown. By the end of that year, my fledgling stock portfolio, loaded with so-called blue-chip stocks, was almost completely wiped out. My beginner’s excitement took a hit, along with my initial investment. But, despite realizing that the stock market can be an unpredictable snake pit, I still found it to be an intriguing place. I experimented with various approaches for a few years without really having a clear strategy. It turned out not to be such a great idea, but once again, I gained valuable experience.
I started with a shot at deep-value investing. The style sounded promising, and the ideas behind it looked good on paper. You are striking a good deal if you can buy something worth $1 for 50 cents.
In my case, things turned out differently. I was particularly inept at catching falling knives, which left me battered once again. I learned the hard way: cheap junk can get even cheaper.
I switched gears, thinking I could outsmart the market with complex option strategies. Long straddles, married puts, protective collars, and long call butterfly spreads—if you can name it, there’s an option strategy for it. I found option strategies wildly exciting, but in the end, no one benefited from my approach except my broker. My option adventure eventually died a quiet death.
I attempted dividend investing as an approach because I liked the idea of generating income from my portfolio. Only this time, it wasn’t my broker but the government happily rubbing its hands in anticipation of more tax revenue every time I received a dividend. When I realized that dividend payments in some cases were nothing more than a fiscally unattractive smoke screen, I gave up.
While some investors achieve excellent results with these approaches, they weren’t for me. I decided to immerse myself further in the world of investing before diving unprepared into a new adventure. My next approach had to hit the mark. The basic idea had to be logical, simple, and effective. I’ve since read about a few hundred books on investing, studied fund managers, conducted research, and ultimately focused on quality investing. Finally, an investment philosophy that met my criteria.
Quality investing boils down to selecting companies in a way that only the best ones remain. Buy them at a fair valuation level. Then wait and let compounding do its work.
With this strategy, I’ve found success for several years now, proving that investing doesn’t have to be overly complicated. Quality investing is grounded in an incredibly simple idea: only the very best is good enough. However, just because it is simple doesn’t mean it is obvious. To identify the very best, you need to roll up your sleeves and be ready to dive into thorough research. Both the simplicity and depth of the method continue to appeal to me.
The good news?
The entire Quality Investing Philsopohy was written down in the book The Art of Quality Investing.
Until the end of the year, you can buy the book on Amazon for just $22.95 instead of $26.99.
Everything In Life Compounds
Pieter