Preston, my oldest son, recently (in late 2017) got interested in investing and wanted to learn about it. I warned him it was really hard, really time-consuming and almost always a losing game to try to beat the “market”. I told my son if you want to invest in individual stocks (rather than just buy indexes) that 1) it would be a ton of work, 2) it would likely not wind up beating the indexes (most don’t). So hard…and harder! He was undeterred. But the subject interests me, and I was interested in seeing some of my prior efforts through, so I decided I’d do it. Also, my life is in a different place now than when I worked on all this ‘investing stuff’ before. I dusted off some of the stuff I had worked on back in 2008-10 related to investing. I had done a decent amount of work in the past developing some tools to value companies using the value approach (Buffett, Graham & Dodd, Etc.). I had never really polished off a toolset or process that I liked. I was too busy with work and life to commit the time to it. So recently I spent a few months finishing/rebuilding the toolset. I also built another new system to allow me to keep watch over the equity universe in a way that I felt was sustainable. One night about 3 AM (after many, many late nights) I beat the final roadblock on my previous tools and got my deep dive spreadsheet calculating the numbers I hadn’t been able to get solved before. I was ready! I ran everything and it kicked out a list of a few stocks to look at out of input of several thousand. On the last day of October 2017, I pulled the trigger on my first investment! He and I dubbed our little working group Deanco Investment Group.
While messing around on Twitter (and listening to investing podcasts) I discovered a great community called FinTwit. About a year later I decided that I was reading all these guys on Twitter talk about investing while I was doing a ton of work related to my own investing. I decided to start publishing some of my work on an anonymous Twitter handle I had setup related to my investing. A couple of hundred people found my little anonymous account worth a follow. I’m shutting down this anonymous twitter handle and I’m now going to move all this discussion to my personal Twitter account. If you want to talk investing let’s do it on Twitter (or even…gasp…in person)!
Objective
FYI…Deanco Investment “Group” is no group at all…it is just me (and my money). My goal is to take what I know about investing and macroeconomics and beat a target market (stocks). Stocks, in general, are the best performing asset class over long periods of time (they hedge against many of the world’s evils fairly effectively in my humble opinion). I will strive to beat the stock market. Many try, many fail, but I will try nonetheless. I will track my performance against a blended benchmark and a world stock market ETF (VT). Over a 5-10-year window, I hope to outperform one or both. If I can’t beat at least one then I should stop wasting my time and just buy VT (to own the world’s stock markets). I intend to be pretty much fully invested in stocks at all times unless extremes emerge that I believe require a different allocation of capital. That said, I have no rule that says I must stay fully allocated to stocks at all times (and won’t at times). These investments are my personal portfolio, and no one knows what life brings so there may be times that life forces me to make an investment decision that I do not really care to make (and that will negatively impact my performance). That said I will add/remove money from this portfolio at times (for whatever reason). Such is life!
Methodology
- Value Investing Approach – I will generally follow a value investing approach. I look for low multiples and a good margin of safety. I value using net present values of earnings (NPV) and discounted cash flow analysis using extremely conservative assumptions.
- Macro Agnostic – I don’t really take “macro stuff” into account with my investing. I just try to stay fully invested in value stocks. But if something is bugging me and causing me to lose sleep at night (fun stuff like worldwide debt bubbles, asset bubbles, financial crisis, yield curve inversions, etc.) I will take that into consideration and adjust accordingly.
- Invest Mainly In Stocks At All Times – If I’m not fully invested in stocks I’m not particularly happy with where I’m at (or maybe with where the world is at). I’m not trying/wishing to time the market and would rather be fully invested in a portfolio of value stocks at all times.
- Investing In Businesses – My goal is not to be a speculator. My goal is not to trade. The goal is to be a long term buy and hold investor. I’m looking to buy shares in businesses that are: 1) not going away, 2) higher quality, 3) lower valuation, and 4) that I would feel comfortable owning for a long, long time. That said, if I believe the business gets to where people are overpaying for it I will (may) sell it.
- Low Valuation Company Selection – I believe that buying at low multiples should generally produce superior returns. I force rank the equity universe against 19 valuation metrics to find investments trading at low multiples (even if relative to other investments).
- High-Quality Company Selection – I believe that buying higher quality companies should generally add a margin of safety and hopefully find more effective management teams. I force rank the equity universe against 20 quality metrics to find higher-quality investments (even if only relatively).
- Generally, US Based Asset Selection – I am not interested in managing currency risks (in addition to my stock selection risks). My goal is to only invest in US companies (unless something specific arises). This is not designed to be home country bias it is anti-currency management bias.
- Extreme Focus On Managing Investment Fees and Expenses – I aim for very limited trading and target keeping my trading expenses below what it would cost me to own VT ETF. I try to buy assets that have no commissions (at my brokerage) and low expense ratios (if I need those types of assets).
- Extreme Focus On Managing Tax Efficiency – I believe taxes are the biggest and most important factor to consider (potentially more important than investment selection). If I can buy a company and hold it for a very long time and have it produce good returns that is the goal. I try to make sure as much work as possible is done in tax-efficient accounts. That way if I must transact, I don’t have to worry about taxes at all. If I have to transact in a taxable account, I want to make sure I’m at least paying long-term capital gains rates on any gains. But I’d rather not even pay that! EVER!
- Use Of Proprietary Database For Screening Investments – I’ve built a snazzy (I think) database engine that I regularly feed fresh data through in order to screen the equity universe down to a manageable subset. I generally rescreen monthly (or less often). Then I’ve built a super-snazzy deep dive spreadsheet to run very interesting ideas through. The spreadsheet helps me run through a big checklist as I analyze each investment decision (and highlights questions).
- Rule-Based Capital Allocation/Trading – I am trying to manage my costs against the VT ETF and limit taxes (so I’m not interested in owning tons of investments nor churning them). I also have designed my allocation methodology/rules to make sure I don’t do stupid things (at least too regularly). I allocate capital to individual positions based on my analysis and my ‘certainty’ rating. I have a cap on the number of positions I will maintain within the portfolio, but I expect to own around 25 positions (if they are individual positions). There are 11 sectors in the dataset I track. I will likely not own more than two stocks in each sector. There are currently 67 industries in the dataset I track. I will not own more than one stock in each ‘industry’. If I want to own something else in that industry, I have to sell what I already have to own it. I will rarely add to any prior investment decision (no doubling down, catching falling knives, etc.). I will make investments and let my winners run and my losers will be chalked up as bad investments (and likely be replaced over time).
Updates
I will post updates about this journey through my blog and my Twitter account. The goal of providing these updates are to 1) document my journey, 2) interact/learn with other people interested in the topic of investing. Ultimately, I want to 1) meet my objective, 2) use/hone my methodology, 3) learn/interact with others along the way. If someone finds it helpful and learns…that is great too…glad to help!
- Monthly Updates – I will provide a monthly update at the end of each month that will include performance results, allocation results, and individual investment holdings. This will be a PDF on my blog and I’ll also include an update at least quarterly on my YouTube channel. Subscribe!
- Individual Investment Decisions – I will post more day to day things (like individual investment holding trades, etc.) on Twitter. Follow me and let’s talk!
- Other Investing Updates – I will post podcasts I’m listening to that are interesting, books I’m listening to that are interesting, articles that I’m reading that are interesting and related to investing on Twitter as well.
Website/Blog (https://deanorolls.com/investing/)
Twitter: @joeydean72 (https://twitter.com/joeydean72)
Important Consideration
These are my investments. They work for me (hopefully) and may/may not for you. Information here should not be construed as financial advice or an endorsement of any specific financial strategy or investment. The information presented here is for illustrative/education purposes only and does not provide any investment advice, tax advice, legal advice, or make any recommendations regarding particular financial instruments, investments, or products. I am not a broker, dealer, attorney, tax advisor, or insurance agent. I will likely soon be living underneath a bridge when all this doesn’t work. Tread lightly, my friends!
10/31/2017
DeanoRolls (@deanoroll5) 