Chris Umiastowski is the development investor for Strategy Lab. Globe Unlimited subscribers can read more in the show at tgam.ca/strategy-lab.
I am writing this Strategy Lab conclusion piece in my sunny backyard. It is late September and the Toronto area was beautifully surprised by weather which makes it feel like mid-July.
This shock heat wave struck me as a fantastic metaphor for my manner of growth investing. After five decades of running my model portfolio, I have turned the first $50,000 into over $250,000.
If we had to begin over again, I probably could not replicate that level of success. But my strategy would stay the same. And that plan is to invest in businesses which are clear leaders in significant or emerging areas and run by excellent supervisors who inspire innovation or disturbance.
Innovation and disruption aren’t the exact same thing. Apple Inc. is a terrific example of both. It disrupted the mobile marketplace with the iPhone, and it continues to innovate around this area that it now dominates. If disturbance creates the opportunity to be a market leader then innovation enables a company to keep leadership.
When I invest in a business, I’m doing this because I think that it will deliver a good deal of positive surprises, just as Mother Nature is doing at the moment. If I am on the right path, I’ll keep on waking up to interesting news about goods, services or other similar business moves.
When Strategy Lab began, I did not imagine Apple would launch and hugely triumph with iCloud services including Apple Music.
As soon as I added stocks of Tesla Inc. into the portfolio, I had no idea that the company would quickly construct a worldwide fast-charging network for electric automobiles, build the world’s biggest battery factory and launching to the residential and commercial energy-storage enterprise. I also did not know they would quickly move to a leadership position for self-driving cars.
I added Facebook Inc. since I liked what it was doing with its advertising platform, and I’d first-hand experience publishing advertisements. I wasn’t expecting it to keep improving its advertiser toolbox to the level that it is now, in my opinion, a better advertisement platform than Google Inc.’s. I was not expecting Facebook Messenger or Facebook Groups to grow as they must boost consumer and business stickiness inside the Facebook environment.
And my biggest winner? Netflix Inc. is more than 2,000 percent in the previous five decades. I had been a believer in this business due to the unbelievable worldwide expansion opportunity it confronted. I had been right about that, but I had absolutely no idea it would turn into a powerhouse of original content. Netflix is currently, in my view, a entire no-brainer for each family with a broadband Internet connection, even if subscribers plan to maintain their present paid TV connection.
The thing about surprises is … you can not predict what they will be. But I believe you can predict which firms will probably deliver innovative or disruptive surprises based on their background and executive leadership. And it is easiest to do this in markets which you happen to be passionate about. However, you have to get beyond the fear that many classical traders have about such stocks becoming overly pricey.
At the risk of being known for a tautology — you can not have a top-performing inventory with no hitting new highs. Such stocks almost always look pricey, even to many professional investors.
1 other thing I want to mention is that five years is still a very limited time span by my investment criteria. I purchase stocks with the intent of holding them much more than Strategy Lab demonstrates. My returns are remarkable in part because I got lucky with the timing. Many technology stocks (and notably Netflix) were very weak when we began this project. Nevertheless, it was up to me to realize that these firms had amazing potential.
That is why I pretty much do not bother with market timing or trading. Just be on the lookout for quality leadership which can innovate or interrupt in significant, growing markets. Then, invest and hold until you are not being favorably surprised any more.
Despite the fact that Strategy Lab is finished, I look forward to contributing ideas on development investing in future columns. Until then, it is back for this glorious end of summer for me.
Courtesy: The Globe And Mail