kcowan wrote: ↑21 May 2017 10:42Ironically, all the super-rich made their fortunes through stock concentration! JD Rockafeller with Standard Oil, Gates, Musk, Ellison, any founder of a successful company, even Buffett!
So the challenge is to Invest in those companies right after they go public and hang on long enough! Both Nortel and BBY gave plenty of signs when the good times were over! Yes it is risky but not rocket science. But it requires you to be hands on.
ghariton wrote: ↑21 May 2017 11:36To Keith Cowan's point, most of the super-rich did not make their money by taking risky investments. They made their money by exploiting monopolies that produced something that was popular or, even better, a necessity. A low-risk avenue...Shakespeare wrote: ↑21 May 2017 11:18You concentrate to make money (if you can stand the risk) and diversify to keep it.Ironically, all the super-rich made their fortunes through stock concentration!
George
I picked these posts up from the Clippings thread because I think that it raises a key point in the selection of individual stocks.SkaSka wrote: ↑21 May 2017 14:55Yes moats are incredibly important in order to maintain returns on capital above the cost of capital for prolonged periods of time, which creates excess returns. However, with the frequency in which the word "moat" is bandied about in the world of finance, one might mistakenly be under the impression that moats are easy to create and defend: they are not as it is incredibly rare to build strong moats that can withstand the forces of capitalism and time!
So what are these moats that we should be looking for? I am a technology guy so I will start there:
IBM
There were seven contenders to dominate the computer business in the 60s. IBM bet on a single architecture and won.
Digital
They were uncontested for grabbing the minicomputer space. Data General was a strong second.
Tandem
They owned the non-stop computing segment.
PCs
Initially a messy group, with Apple having an early lead. IBM offered an open system with help from Microsoft.
OS
Microsoft dominated from day one by offering their OS for $8 on any computer that wanted to ship it. Gates brilliance in that strategy earned him billions.
Handhelds
Many contenders until Apple introduced the iTunes and App store. Android has the most placements but the least profit.
Wearables
No leader has emerged. Google is a leading contender.
Search
Google remains the leader.
GPS
Garmin remains the undisputed leader.
I have probably missed some categories but that will do for now. I know many will disagree or quibble with these choices. But the point is to establish a pattern that can be used for the future.
Let me talk about some specific stocks that don't fit into any of these categories:
Oracle - a database company using IBM patented technology
Cisco - the backbone of the internet for 10 years
Palm - the leader in palmtop computing
Blackberry - the leader in handheld pagers
Nortel - the global telecom competitor
Jones Soda - a non-standard soda distribution company
Lululemon - a non-traditional wearables company
American Movil - a cellular company in Latin America
All of these had their day making 20x their initial stock price. All of their moats eventually eroded.
So what are there now?
Amazon
Google (still)
New Flyer Industries
So what were/are the definable moats for these companies, if any? How sustainable are they?
Are there any others that have proven themselves to be suitable picks right now and why?
Wise words from Sensei:
Here are the top ten in the US over ten years:Sensei wrote:anyone else looking for reliability need to focus on moats. The average life expectancy of a company on the S&P is less than 20 years. Thus when we are looking for stability in a company, we need to ask ourselves why that company will be around in 20 years and if we can't answer that question, cross it off the watchlist.
What say you?Home Depot (HD) closed at all-time highs today. $5000 invested in Home Depot when it went public in 1981 is worth about $30 million today. Turning 5k into 30 million for 35 years means that HD compounded at an average annual rate of 28%. 28% annual appreciation for 35 years is very, very rare.
To compare to some of the best-performing stocks of all time: 5k invested in Microsoft in 1986 is worth about $4.85 million today. 5k invested in Walmart in 1975 is worth about 29 million today. 5k invested in Applied Materials (AMAT) in 1975 is worth about 22 million today.
Finding a stock that has the potential to compound at 28% annually for 35 years is close to impossible and probably, it won’t be repeated ever again. Holding such a stock for 35 years might be even harder.