Don't Sweat the Small Stuff

A key part of my strategy is to focus on the big picture. Yet, there are times that can cause a problem when you overlook something important.

As an investor it is important to focus on the big picture when building an investment thesis. You’re looking for the top 3 reasons to buy (or sell) a stock. What are the drivers of value? What specific items do you need to understand in order to make the case that the company will create alpha and outperform the S&P 500 index?

Due to this framing, my early efforts are often spent looking for factors that lead to outperformance: cheap price, strong double digit growth, high returns on equity, and value accretive capital allocation. Each of these items can individually add sufficient value to create alpha. In combination, they are a recipe for success.

Therefore, I often will leap on indicators that provide me insight into one or more of these avenues of the business.

The downside to my strategy is that by focusing on such large points, I increase the possibility that I miss something relatively small that is actually a big deal. Today, I want to share my thoughts on one example of a recent investment where I think I made that mistake. No one likes discussing their mistakes. I’m also unsure how much people like reading about others, but the only way that I can see to honestly share my successes is to also honestly share my failures.