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Take Advantage of Having Access to Great Investors (and Smart People)

Dan explains the importance of leveraging smart investors around you -- and occasionally venturing outside your comfort zone.

November 22, 2020

I’m a fairly conservative investor. I most deeply cover a category — retail — that most people find boring. There are good companies in the space, but the nature of building stores, supply chains, and managing inventory means that growth tends to be slow and steady. Retailers don’t double their sales in a month or see gigantic gains in short periods of time.

Even the technology companies I cover tend to be mature companies that move steadily ahead, but don’t double or triple in a few months. Apple and Microsoft are great investments but they’re not going to see their stock prices rocket up simply because their market caps are so high it takes a lot to move the needle.

Over the past year or so, really since the pandemic hit, I’ve become less conservative and that’s largely because I have spent so much time talking to really smart people who are great investors. This hasn’t made me put half of my portfolio into speculative biotech or cannabis stocks, but I own shares of companies in both of those spaces because of the people I have spent my time with.

Breaking My Own Rules

My investing style has generally been to buy shares of companies that are part of my everyday life. If I use something regularly — whether it be a piece of technology or the place I get coffee from — that was where I started looking for investment ideas.

It’s a sound strategy and a good place to start. Not every company that’s part of my daily life proved investable when I dug into their financials, management, and growth prospects. Many did, however, and that provided a great way to start my investing life. It’s a foundation but one of the reasons to have a foundation is to build on it — and that’s where my colleagues and former colleagues step in.

Much of my career in the financial world has been fairly solitary. Writing requires research but it doesn’t really expose you to new ideas or ways of thinking. You might stumble upon voices you trust but since you’re researching pieces that are about topics in your own wheelhouse, you’re not likely to be led into new areas.

That slowly changed as I became more of a broadcaster and less of a writer. I had always done a lot of podcasts for my previous employer, but always as a guest where my expertise was most of the show.

That changed a bit over the past couple of years as I settled in to do a regular show with a colleague who has since become a good friend where we had more of a balance and covered a broader range of topics. Since we were working together every week (or at least most weeks) we had to cover topics that were outside my core coverage area. That forced me to do two very important things:

  1. Research companies that weren’t necessarily part of my life (who knew that Tractor Supply and Planet Fitness both have really strong financials?), and

  2. Listen to the well-researched perspective of someone I knew and trust, learning how she saw and valued companies.

It sounds simple, but when you’re capable of doing your own research and come to the table with a certain set of investing values it can be hard to break out of that mindset. Essentially, for most of my life as a serious investor, I picked from the same pool and limited my upside by not trying to shake that up. I also, perhaps, lacked a bit of diversification — though that’s not as big a factor when you’re generally buying shares of stable companies.

Unleash the Flood

Over the past eight months I have been lucky to get to host shows and podcasts featuring a number of brilliant investing minds. These include some of my former colleagues and continues with the 7investing team.

On many of these shows I get to hear world-class investors — people I like and respect whose expertise often differs from my own — make the case for stocks I’ve never considered buying or ones I have dismissed. Sometimes, I’m hearing a new angle or a different interpretation of data on a company I took a casual look at. In other cases, I’m learning about companies that maybe never made my radar in the first place.

I’m still more likely to invest in sectors that I understand really well, but spending time hearing and digesting the thoughts of thoughtful investors has put more stocks on my radar. It has also led me to (mildly) take some more risks in areas where I see major possible upside but can also see the path to bad outcomes.

My hit ratio will likely decrease as I have added more stocks to my portfolio that have higher upsides coupled with much higher downsides. I, for example, now own both Royal Caribbean and Carnival Cruise Line. Both companies were very profitable with loyal, growing customer bases before the pandemic. The problem is that a return to normal may still be ways off and when customers will come back at anything close to previous prices is also a major concern.

Cruise lines could recover and five years from now, they may be raising prices, serving a larger customer base, and finding new ways to add incremental revenue. At the moment, these are companies with high expenses, almost no revenue, and incredibly expensive debt. Bankruptcy remains a risk — and that would likely eliminate all shareholder equity — but it’s a risk my friends and colleagues have made me more comfortable taking.

When I see my 7investing colleague Maxx Chatsko placing bets on biomedical companies that still need to prove efficacy and gain approvals, to even have a chance at revenue, it makes it clear to me that my portfolio needed more risk. I might say the same of Austin Lieberman who has shown a willingness to buy promising companies even when the end results remain in serious doubt.

It’s a lesson I’ve learned from a lot of people — both the 7investing team and many people we all respect in the investing world. You can go outside your wheelhouse, learn companies that aren’t part of your daily life, and sometimes even buy shares in a company recommended by a voice you respect (that’s why I’m buying at least one share of Maxx’s picks for a full year — to increase my exposure to a sector I don’t track myself).

Be You, But Better

My experiment with Maxx’s picks is a journalistic exercise as much as an investing one. I plan to write about what I’m learning and I certainly won’t be putting more than few percentage points of my portfolio into buying shares in companies in sectors of which I have a limited understanding.

That being said, I’m much more open to looking into companies that fall into or adjacent to categories that I do follow which my colleagues and investing world friends are high on. I’m lucky to count some of the best investing minds on the planet as my teammates and friends.

The good news is that you have access to the diverse team here at 7investing. Maybe you tend to be a risk-taker, so buying some of my picks might be a good balance for your portfolio. Perhaps you know knowing about biotech so picking from Maxx’s (and soon-to-be Manisha Samy’s) picks might give you needed diversity.

Working with smart people with established track records has shown me that I can be a better investor by trusting them. My portfolio now includes picks that are up by double digit amounts that have outperformed what I might have purchased or added to had I solely followed my own advice.

I’d say my portfolio now includes 5% risky stocks I would never have considered and 25-30% shares in companies that would not have passed my “is it part of my life” threshold. I’ve also become a credible, informed voice on a number of companies that never would have been on my radar previously.

Investors — not just those of us who work in this space for a living — benefit from hearing diverse voices and breaking out from their bubble. That may not be a problem for everyone, but it was a big one for me and I’m a much better investor (and advisor) for listening to more people and considering more companies.

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