Golden Rule of Investing #12


One Golden Rule of Investing is “Continually look for restructuring stories to improve your portfolio”.   This process begins with being open to all sources of information.  This is an excerpt from a lesson in our course Purposeful investing (Pi).

Restructuring requires a continual willingness to shift mind-sets.  Here is a true story from the 1970s that shows what happens when we allow our research to become too rigid.

I was living in Hong Kong and had a series of business meetings in London.  I had lived in London for a year so thought I knew where I was, where to go and how to travel most efficiently though the city.

The meetings were at the five star Churchill Hotel but I was on a tight budget and stayed at a lower cost hostel, near the Sherlock Holmes Hotel on Baker Street.  On arrival, I checked out a map of the Underground.  I knew the train was the fastest and yet quite inexpensive way to get from place to place.  Based on this assumption I limited my research and ignored travel by bus or taxi.

london map

Underground Map. Click on image to enlarge

The trip was a little complicated, but I figured it out.  I walked from the hotel to the Bakerloo Line.  There I boarded the train for two stops to Oxford Circus where I disembarked and waited for a Central Line train to Marble Arch.  I got off at Marble Arch and walked to the Churchill Hotel.  The journey took about 45 minutes and was most miserable in two ways.  First, the Tube was always cram packed in the mornings and afternoons.  Even 40 years ago, London’s underground rail system was busy during those rush times.

Second, there was quite a walk at each end of the trip.   This left me drenched since it was raining every day.

Yet I soldiered on.  My research showed that I was using the fastest route the underground provided.

At the end of the last day of meetings  I faced a huge downpour.   I would have had to nearly swim back to the tube station, so instead under the dry portico of the Churchill I hailed a cab.  No matter the cost, I decided to arrive back at my hotel without being soaked.

I gave the driver the address and he turned, looked at me and asked “Are you sure mate?”  I, thinking this was a long, expensive ride, sucked in my breath and said “Yep”.

The driver turned left, accelerated a bit for about one minute and stopped.  We were there!  The fare was the minimum, as I recall, just a few schillings.  This was not much more than the train fare, about 44 minutes faster and dry all the way.

Back in my room, I pulled out my A to Z map and discovered that my hotel was about five minutes walk to the Churchill!

London map

Map showing Baker Street to Churchill Hotel.

I  had been so sure that the train was the least expensive way to travel in London that I limited my research to finding the best train route.  I did not even look at alternatives.  My closed mind cost me time, money and comfort.  I paid too much attention to the tiny details and so doing missed the big picture.

Getting a bird’s eye view is a complete view seeing both the broad horizons as well as the narrow perspective.

Let’s don’t get too caught up trying to see the trees and miss the forest.  Otherwise we may miss some of our best investment opportunities as times and situations change.

Here are ideas on seeing the pictures big and small based on the life of the ultimate value investor, Warren Buffet, on how to be a Purposeful Investor who continually finds new alternatives in a routine way.

Warren Buffet is a creature of habit, and spends about 80% of his day – everyday – reading.   This gives him ammunition to continually think about the things that are most important to him and his business.  He spends this time getting input, not giving output as he does not spend much time in meetings.

There is a story that when Buffett first met Bill Gates, he penned in a time to meet with Gates and talk.  What impressed Gates was the emptiness of Buffet’s datebook.

Buffet spends most of his day reading because this is what he likes to do.  Buffett likens reading to investing.  Build knowledge up, like compound interest by reading diverse information every day.

Focus is also vital.  Buffet separates his reading, financial statements, journals and reports in the office, newspapers and books at home.  He is a fast reader but also makes sure to focus on one material at a time.  When in the zone, he completely shuts off everything, closes his windows and focuses only on what he’s reading at that moment.

This is possible because he diversifies his reading research.  The journey is the reward so he reads what is interesting to him at work but also reads numerous newspapers that expand his horizons every day.  He says he doesn’t do very much of anything he doesn’t like to do.  He commands his time, but has a lot of fun doing it.

Buffett summarized his most basic beliefs of investing in an shareholder letter.  First, keep it simple and steady: “When promised quick profits, respond with a quick NO.”

Second,  focus on the big picture: “Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on.”

Buffett also puts his money where his beliefs are.  “My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will… Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. I suggest Vanguard’s. (VFINX)).”

Buffet’s biggest factor of success is the freedom to wake up every morning and work on something he is passionate about and that leaves him fulfilled.

The way to start Purposeful Investing is to decide exactly what you are passionate about and that will leave you fulfilled.

A good book to read, “Too Big to Fail” by Andrew Ross Sorkin provides  a snapshot of how Buffett conducts his research.

Purposeful, good value investing begins with passion, something fun and fulfilling that can also be worry free and profitable.  Following a routine of this type can help you create investing missions that help you profit as you achieve fulfillment of your purpose.

Learn more about the Purposeful investing Course here.

Gary