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Discovering investment opportunities is one part art and one part science. We outline our framework in Our 7 Investing Principles.
Generally, we look for companies who are doing something that no one else can ─ which we refer to as a sustainable competitive advantage. Doing so allows them to capture profits over long periods of time. The best companies will then find ways to use those profits in ways that maximizes the value of their businesses over time. As investors, we benefit from that increasing enterprise value.
But sustainable competitive advantages don’t just naturally happen; they need to be earned. They require visionary management teams who have a knack for allocating money to the most lucrative opportunities. This often takes place in markets that are rapidly undergoing changes.
In other words, we enjoy finding the situations that are most favorable for investors. And we don’t endorse coin-flipping or acting on hot stock tips from your cousin as valid approaches to investing
We should start with the legal disclaimer that none of our recommendations should be taken as personalized financial advice. We aren’t directly managing anyone’s money (see FAQ #2 above) and we recommend you speak with a registered investment advisor or a certified financial advisor if you need personalized guidance.
With that said, the stock market essentially operates as a massive online auction. Just like eBay, people are continually bidding on how much they’ll pay for a certain stock. When things are going well, people tend to bid more and stock prices rise. But stock prices also fall even for good companies if people lose their optimism or confidence.
This risk of potentially losing money is why the stock market typically provides a greater return than “safer” investments like bank savings accounts or Treasury bills. The risk/return continuum also applies to individual stocks as well. Companies with a higher perceived risk also have the potential to provide higher returns. Understanding the risk/reward of a stock price compared to the business’ underlying value is one of the key components of fundamental stock analysis.
What that means is there’s no free lunch. We work hard and diligently to find our best ideas. But we can never guarantee that all of our recommendations will increase in value. And if you meet anyone in the financial industry who does try to guarantee that, I’d suggest running the other way.
While we can’t promise all of our picks will produce positive returns, a diversified basket of stocks that represents high-quality companies does tend to generate excellent returns over time. We’ll be transparently posting the returns of our recommendations ─ both individually and as a group at all times
The stock market is not a casino. It’s a systematic way to allocate corporate profits to investors
While we will notify subscribers if something drastically changes our buy thesis for any given stock, 7investing will indefinitely keep each company we recommend on the scorecard for the world to see. In other words, the performance displayed on our Recommendations page will represent the returns of all of the picks we’ve ever made since our beginning.
We’re buying-and-holding for a couple of reasons. For one, we want to encourage a long-term investing mindset. Warren Buffett says the best holding period for stocks is “forever,” and for a good reason. When great companies are given plenty of time to compound their returns, it can work wonders for your investing performance.
Secondly, selling is really hard. We’ve done plenty of quantitative research that has shown that selectively selling individual positions from an equally-weighted portfolio doesn’t actually improve investment returns. The reason being, we often “trick” ourselves as investors – confusing short-term issues with long-term problems. We might have tricked ourselves into thinking that Tesla was overvalued when it began selling its Model 3 in limited quantities. Or that Netflix had czed off-course after announcing it would spin off Qwikster as a separate company. Either of those short-term issues might have made a convincing case for selling those stocks. But if we did, we would have missed out on the incredible future gains those companies went on to provide.
We’re going to keep it simple and play to our strengths. We want to focus on identifying great companies, buying into them, and not looking back.
We do this to indicate that the recommendation didn’t come from just a single person.
Our advisor team often discusses our favorite ideas together, and there’s often overlap in our lists. That means that more than one of us (and sometimes, all of us) contribute different pieces to the official report or the analysis.
Other times, we consult with experts from outside our team – who prefer to not be mentioned due to their industry affiliation.
We’re believers in giving credit where credit is due. And sometimes that credit is shared by multiple people.
The number seven is considered to be of good fortune in Western civilizations. Some might say it’s due to the lucky significance in Vegas slot machines and craps tables. Others would suggest it’s symbolic of the seven continents or the seven great wonders of the world. And some others might assume that we just really liked that 1995 movie with Brad Pitt.
But the roots of our name actually came during the summer of 2017. Founder Simon Erickson had a late-night eureka of how he could bring together the very best ideas from some of his favorite investors for less than a dollar per day.
He also still remembers running to his office in the middle of the night, to scribble down the idea and structure. Not only did that serve as the original business plan for 7investing, but he also succeeded in not waking his pregnant wife from her peaceful slumber.
It was a win for all parties involved and perhaps a bit lucky, after all?
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