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Analyst Read: Investing Strategy (Part 3)

The ROIC Investing Strategy - Part 3
(ITGallary)
(ITGallary)
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The final installment of the investing strategy that we orient around on the ROIC Big Board.

As personal investors with careers, our goal is to multiply our personal and retirement capital by 10, 20, and 30x by retirement. As such, we want to generally look in the space between the two strategies and focus on the 80/20 rule. 

The ROIC Investing Strategy can be thought of as long-term growth on offense, with value investing discipline on defense.

We look for strong, long-term growth companies. 

  • We do not have access to early-stage startups, so we must find growth in the public or accessible private markets. We prefer strong growth companies that will win their niche over mature, undervalued companies that we might have to constantly worry about.
  • I believe that the easiest, high-conviction factors that I can predict reliably are technology or transformative shifts in industries. Some of these trends are as obvious as seeing how much better the iPhone was than the Blackberry in 2008.
  • If we are confident in 5-10 trends, we can worry much less about our holdings being 10-20% overvalued or crashing 20-30%. Over time, growing fundamentals will channel our multi-year returns upwards.

We isolate an investment to a handful of main drivers that will drive the bulk of the returns. “Will this industry grow and will this company be a winner in that industry?”

We are disciplined and require a reasonable valuation. We don’t want to have to worry about valuation bubbles that might pop or grow so large that the company fundamentals cannot catch up in the foreseeable future. We will avoid overvalued entry points even if we like the company or stock. And even though our bias is to hold long-term investments for years, we shall be disciplined in taking profits if valuations run away from fundamentals.

We stay concentrated in high-conviction ideas and are unemotional about which investments are the best. We do not want to dilute our returns or mindshare with ideas that we have a low confidence in. Furthermore, it is very hard for a hobby investor to track more than 5-10 companies at a time.

We will remain flexible, adaptable, and constantly curious. Although we focus our search as described, we will not be dogmatic and will take opportunistic shots at high risk-reward bets or deep value plays if they present themselves and are compelling.

We are aware of the macro and market environment and adjust as best we can. We will try to be conservative and adjust between cash, equities, real estate, and alternative assets and attempt to avoid asset class selloffs.

How do we do this successfully? As a community, we can source many great ideas to invest behind. Cents is here to provide industry experience, valuation skills, and general knack for a good win rate as additional guidance for those who want it.

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