Last week, I shared my thoughts on why I was more excited about finding attractive opportunities in the current environment than consensus. The key message was that not buying a company you like and understand because you were concerned about weakening macro was a colossal blunder. Of course, every rule has exceptions. If you are dealing with a cyclical business, especially a commodity company, it would be naive to put a brave face and ignore the macro.
Today, I am outlining seven critical criteria that make a great business and an excellent investment - an ideal combination I am trying to find. I hope this will help you in your own investment process. As for me, I soon plan to start ranking the investment opportunities that I come across, giving each company a score for critical criteria. This should streamline my research process and allow me to focus on the most promising opportunities.
Besides, two specific events inspired me to write this post. First, a friend of mine and a subscriber to the newsletter has recently forwarded me a 50-page study by Tweedy, Browne called “What Has Worked in Investing”. I realised it was one of the first documents I uploaded to my library, which I had completely forgotten about. Having studied dozens of studies of drivers of portfolio returns, Tweedy, Browne identified four key factors: 1) low price, 2) high share ownership by management, 3) a significant decline in a stock’s price, and 4) small market cap.
The second reason for writing this was the growing AI capabilities of various platforms. This made me wonder what part of the investment process could be outsourced or improved with AI. If I were to ask the smarted machine on Earth to find me the best investment, what exactly would I ask it to look for? Can I train it? I am also curious to hear what you think. Look forward to a thought-provoking discussion.