Long Term Investment Strategy
Fortune recently had an issue about retiring rich, or at least rich enough to live happily ever after. There were lots of different strategies on how to invest, many by the big investment gurus out there. I have to admit that I read many books that go into great detail on the different strategies by the wise men cited in the stories, and you can learn a great deal by reading the books, only one methodology kind of rang a bell. This is something that Tom Gardner from Motley Fool called 6 supertrends … and 6 superstocks.
The idea is to invest in trends that you believe to be true. Real trends that will shape your future life. You can then obviously mix it with trying to find trends that are not really visible yet or possibly trying to find small under covered companies that will grow with this trend.
I have to admit that I was a long time member of Motley Fool and followed Tom’s and other Fool’s posting, also being very active on the boards themselves. The idea that Tom posts about in the Fortune article is something that fits very well with the long term strategy that Motley Fool is advocating. This really led to my believe that the stock market is something you can invest in, but not something you can play with. Going in and out of stocks in hourly trades or even monthly trades is nothing for me.
So what kind of stocks did I pick in terms of long term trends?
eBay : The company has a relatively secure main business that has still lots of room for growth. Due to the volume of auctions eBay is very hard to replace and same as Google’s profits are growing via optimization, I believe eBay still has a lot of room to grow through usability improvements and moving into other closely tied spaces. One of the big reasons was also their real banking on APIs and that those can be free and eBay still makes more money. That trend will continue for a long time.
Above that I do really believe in PayPal. It’s a bank that belongs to eBay and there are some very fine long term numbers playing in their favor. I expect a lot more on that front. Payment on the internet is a way forward and eBay is very well set up with PayPal.
Third Skype. Maybe they did pay a lot but again it is the “all my friends are there” phenomenon that will keep you locked in and with additional features and easier integration through their API knowledge, moves into the services market, direct local connections and the like, I believe that it can be a real winner.
It’s really three trends that play in eBays favor, a favor that will make it outperform the market in the long run.
Nokia : I probably invested too much during the first bubble here but am back well in the green. Sure they are having problems press wise in the high end with stuff like the iPhone but boy do these people know mobility. This does not mean that you hype everything, but with a paying suppliers later than getting their money, banking on platforms like cars, investing in Symbian as an OS, covering the entire spectrum from low to high end and still trying out new things like a tablet, blogging and more, I believe that if you believe that mobility is here to stay, and that we will be more mobile in the future, and that a very big opportunity is in 3rd world countries, then Nokia is the company to bank on. Sure a Motorola can have a one time Razr success, and sure others are making money on licenses. But I don’t know licensing, but I do know that Nokia will always be very good.
F5 Networks : Will we have more traffic on the internet in the future? Will there be more big web sites? Will there be more huge web sites? Will there be more encrypted traffic? Do companies want to buy something where they have somebody big to blame? Are they a if not the leader in load balancing, world wide load balancing, ssl accelerators, … and have they been small when I invested several years ago and undercovered? Hell yes! The stock performance tells the tale.
Apple : Buy the stuff you use. This is one of the cases where you just need to look around yourself. I am now up close to 300%, one of my better performers, and I believe that they will have a good future ahead of them. The thing is that design is a very important thing. Once things just work, design is really one of the very few things that will make your product stand out. And I always wanted a Mac. Suddenly Jobs came back and the Mac Laptops were not too expensive anymore. The iPod was the second hard disk mp3 player I bought and it was such a leap forward, just for the design and want to have factor.
They really know how to build great products, how to excel, how to really thrill people. The thing is that this is how the future of marketing will work. Sure you can market everything, but if you invest half of the money you want to spend on marketing into product development and get the product right, then the rest of the marketing budget will have a much bigger effect. This is what Apple has understood.
Genentech : Is medicine a research business? Is/Was Genentech still rather small? Yes, it was when I invested and I just felt that they are attracting the right people to be successful in the long run. Because in the end the right drugs need a good development team and a good research effort. This is what Genentech really excells at it seems. I have no way of looking at a drug pipeline and finding out which drug will make it and which won’t and how much money each can make, and factor that in. I think in the long run, looking at other companies, Genentech is bound to have some really killers out there. This is why I invested there next to a fund by Sal. Oppenheim that is managed together with several consulting companies in the medical business. The fund is really my general bet thinking that if several consultants decide on something, they can’t be all wrong (and history up till now has proven that idea right) and above that I have a bit of upside (I believe my long term downside to be limited) with Genentech.
Conclusion. I could be all wrong, but holding those for several years, buying in down time when I did not see the trend changing and still believing in management, up till now has been a good thing for me. Let’s see how they look after the second time the stock market tanks and comes back up again. I can’t play the market anyway, so I’ll just sit it out.