Sourcing Investing Ideas #1 – Cloning

Dolly
Dolly, one of the first animals cloned. Thanks: Wikipedia

When I began Investing, this was one of the most difficult thing to do – sourcing investment ideas. I was getting most of my ideas from friends and family. They were good but not great. As I started reading more and more about great investors, I noticed a pattern. They invested in bunches. It felt like a herd mentality, but I was seeing this pattern over and over again. Weirdly, those investments brought in amazing returns. The first super investor who claimed this amazing phenomenon as “Cloning” was Mohnish Pabrai of Pabrai Investment Funds.

Pabrai says that if he sees Warren Buffett buying any stock, he would try to reverse engineer why Buffett bought it. If he can figure it out, he goes out and buys the same investment. So what did I do?

I cloned Pabrai. I started looking into what other great investors were buying up. If I understood why they bought it, I would buy it. This has worked out so amazingly well for me over the years.

Please note that I generate ideas many other ways and I will write about it in the coming days. But kudos to cloning this is one of my favorite idea generation method.

Here is one great lecture of Mohnish Pabrai at Columbia University

Difference between Venture Capital and Private Equity

Investing is my passion today and I get up everyday looking forward to it. I had a life before this. I used to be a startup junkie. I worked for almost a decade in Silicon Valley working in different startups playing different roles. I even built my own startup when I was in Toronto. The experience one gains in working in a startup is amazing.

You learn so much about business models, aesthetics, patience and build amazing relationships with people. Today, I can certainly count my best friends are people with whom I worked with on startups.

The role of value investor is very similar to that of a role in a startup. The goal in both of them is to be a contrarian and to make bold decisions where others fear to make any.

In the startup world, I respect and admire a few folks and I look forward to their writeups and videos. Fred Wilson is one such smart and humble investor and today he writes about Venture Capital and Private Equity. As an investor today, I feel I am more empowered because of the value experience I got in working in building businesses from the scratch.

See his article at What VC can learn from Private Equity.

 

Bill Ackman Presentation – Platform Companies and their Performance

I got introduced to Platform companies as soon as I heard the word – “Value Investing.” In fact one of my early investments included Berkshire Hathaway, the grand daddy of Platform companies. Bill Ackman is a value investor who takes an activist position in companies and has created a lot of value for his investors. Although he is known more in the media for his activist holdings, he also makes a ton of his returns from investing in Platform Companies. Here is his presentation on Platform Companies and what kind of return one can expect from them – Ira-Sohn-2015-Presentation.

Personally I have invested in many of the companies including Liberty Media, Burger King, Fairfax and have profited quite handsomely. It is important that one holds on to the position to get these amazing results. The guys who run these platform companies are smart and always keep shareholder’s thoughts before they make any decision.

 

 

A boring stock that can make you 14% return per year

As most of you know, I am a Long Term Investor and like boring stocks that slowly makes money but over a long period of time. This is a bank stock that has been growing their Tangible Book value for about 14% a year consistently and will certainly keep doing that for at least another 5 to 10 years. The bank is run by one of the most intelligent and smart CEO, one can get that Warren Buffett will pay him more salary if that CEO joins Berkshire Hathaway.

The name of that bank is JP Morgan Chase and the CEO is Jamie Dimon. Look at their growth in Tangible Book Value per share including the 2007-08 Financial Crisis.

ar-tangible

Their Earnings have grown from $4.5 billion to $21.8 billion ( almost 5 times ) in 10 years.

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That is one hell of a result to produce for any company let alone banks.

Full Disclosure here: I used to be a JPM share holder and have doubled my money investing in them. But as of this date I do not own any shares in JPM.

Now you may ask, why am I not holding JPM in my portfolio and the reason is this. My full time job is to look for investments and I have all the time to explore difficult investments that I hope get me a better return than 14%. But if you are like most of my friends, who make paltry 2% on their CDs and GICs, there is JPM for you that can easily make 14% or more every year. All you have to do is just buy their shares and never sell it.