The aha moment of value investing by mraziz

During the period 2010 onwards, I have spent a fair number of years reading about Warren Buffett, Charlie Munger, Philip Fisher and a few other investors known for their track record in investing. Two of the main reasons I like these names are:

  1. They were not fed with a golden spoon: they started average or above average but not millionaires.
  2. They are consistent: their methods work for the very long run.

So naturally, I started investing and followed the school of value investing. The market treated me with a chain of mood swings; a lot of times I have made great returns, another lot of times I have managed to lose a significant portion of my investment in a matter of hours or days. All in all, I would say the market treated me fairly and I made a reasonable progress, but I never was completely sure that the companies I was investing in are exactly the type of companies Buffett, Munger and Fisher talked about when they described value investing. This lasted for a while, with companies like Google, LinkedIn, Amazon and a dozen more getting in and out of my portfolio. It all sounded fine but not great.

And then came Tesla.

I have seen the name Tesla showing up here and there for a while, then one day a friend talked to me about the company and why he thinks it's valuable. From that day on (somewhere around late 2014/early 2015), I have started reading a lot about Tesla, which led me to the man behind it, Elon Musk. That's where my obsession with Musk and his work surfaced up, I started reading every single document and watched every video I could find. I read Musk's biography, which naturally lead to great lengths of reading about SpaceX and back to Tesla. A rollercoaster started on that day and it has not stopped until this day. Everything in there kept me amazed, mind blown. The kind of work he is doing seems like crafting art, it's beautiful, it's the kind of work I look forward to in life.

Buffett, Munger, Fisher and Musk brought all together made me realize something: they all fit perfectly into the picture. Buffett and Munger advocate investing into companies that are growing and where you can foresee them sustain their growth down the long run. Fisher advocates a similar idea as well as researching the companies you invest in very deeply. Fisher also brought a significant point: if the company is growing and you can see potential future growth, then don't pay much attention to high costs and no profits. It's the simple idea of having to pay dearly before you start gaining profits. Of course, all the three value investors ideas are wonderful, but they break without the second piece of the puzzle: finding companies that match that set of filters. The second puzzle is probably the hardest part; finding them isn't easy. Once you bring Tesla, SpaceX and the man behind them (I will write something about Musk on a different post later), the puzzle is solved.

To me, this is what I call the aha moment of value investing. Once I have appreciated Tesla and the work they do, it made a lot of sense to me, this is the kind of company they were talking about, a company I want in my portfolio. This is what Charlie Munger meant when he said that the investments that made Berkshire Hathaway the huge conglomrate it is today are no more than 20 businesses, averaging a single business every two years. If you manage to find one every couple of years and invest heavily in, the compounding effect kicks in and it only leads to great returns.