investing isn't hard

Recently, I came across a post that wrote about why investing is hard. The author is a microcap-stocks investor; and that's fine. I have no problems with him except that the team, it appears, makes a living out of other people's money as well. For instance, 

Well, it is their life and their problem. It's just not them; there are so many more both in the US and India. Nevertheless, I don't like it when investors tend to look for other people's cash. Never mind.

By the way, I care two hoots to such workshops, seminars, and so forth. If I am good at investing, I better stick to my own philosophies and strategies, which are, again by the way, simple, not path-breaking. If there are facts, I take them; if it is opinions, I would rather keep mine. Sounds good.

The author in the post looks at a few historical anecdotes, and concludes that investing is hard. Well, I say, it isn't. Let's look at the stories.

Amazon:

Well, Bezos himself at one point wanted to be an astronaut, later changed his mind to aspire to be a theoretical physicist, whatever that means. But then, he majored in computers and electrical engineering. Yet, he ventured into an employment in finance, which had nothing to do with this educational majors. Amazon started as an online books seller. It only so happened that Amazon started selling other things and every thing much later. The point is that without taking away the extraordinary vision and execution from Bezos, there was, and is, this luck factor that helped Amazon's stock prices thrive. Amazon wasn't a great business in June 1997, or at least no one knew it would be one. In my opinion, the stock prices have always been way higher than the intrinsic worth of this amazing, great business. And, I wouldn't invest in Amazon in 1997; and by investing, I mean, a significant portion of my capital. I am not wired to take chances on matters that are not entirely in my control. Heck, I am not even buying the stock now. There are plenty to pick on value and price terms; Amazon isn't one of them.

Valeant:

Well, the stock closed at $15.98 yesterday.

That's correct; the market price is heavily down from $262, the all time high. Now, its market cap is only $5.6 b. True, there were many buying the stock in 2015 for long. But then it is also true that the stock was trading at single digits before 1999. And an investor who bought the stock anytime before 2011 could have made a lot of money by 2015. 

It is another matter that by end of 2015, the stock came crashing to $90. By that time, there were two stories floating about. One, it was a great business, and therefore a great stock for keeps. Two, the business was built upon unethical terms, heavy on inorganic growth tempered with unsustainable economics. Not taking away anything from the investors long on the stock in 2015, I suppose the second story was resonating much with the numbers from the financials. These things happen both in business and investing. That is why it is better to keep investing simple. If you invested in Valeant type stocks, you are a bit less certain of matters to come. Of course investing is a game of probabilities; and may be because of that, what we want instead is businesses whose future looks more certain than those of others.

Apple:

Well, Wayne made an error of judgment; not in terms of Apple's future, rather in terms of the chance he could take. $800 of 1976 is probably worth $3,750 adjusted to inflation now. Wayne could have easily played the gamble and stayed on, what with $3,750 today. The stake was negligible, and there were opportunities. But not to the size of what they eventually turned out. Here's why.

Apple became a publicly listed company in 1980 with $22 per share IPO. I don't think Apple gave outsized returns by that date to its founders. Those visionaries of Apple surely did not envision iPhone during the IPO time either.

Steve Jobs left Apple in 1985 because of the fight for power. And we could rephrase that and say, Apple had lost focus and vision by that time.

Apple's fortunes turned only after the success of iPhone launched in 2007. From 2010, Apple started selling iPad. Even today, a much larger part of its business value is dependent upon the continued success of iPhones. While Wayne could have, and probably should have, retained his $800 stake, no one was sure of Apple's phenomenal dominance as we see it today. This was a huge factor of luck for its founders. There wasn't anything hard in the 1976 decision; just tough luck for Wayne.

Altria:
I don't want to comment anything on cigarettes as a business except that tobacco is addictive and there are way too many stupids around the world to consume it. The business that makes tobacco obviously is going to make money, and the government who regulates it wants a fair share of profits through duties and taxes. Altria has been a great stock.

Alibaba and Softbank:

Well, again, Softbank made a portfolio of investments; some clicked, many did not; and Alibaba made its returns outsized. That is how the portfolio of stocks are supposed to turn out. There is nothing hard or easy about it. The extent of excess returns is more of a luck than anything else though. Softbank is sort of a private equity, venture capitalist firm; it liked to take chances; and it did. In fact, the story is similar to Yahoo's investment in Alibaba giving the business supersized returns.

Patrick Industries:
The story is similar. There is nothing hard about it. The investors averaged their cost when the prices were coming down. They took chances when there were a lot of unknowns. Anything could have happened. There wasn't any foresight involved; it was pure luck that the investment turned out to be a great one. The fact that Tontine Capital was bold enough to buy more when chips were down played in their favor when things started looking better. If they had not, there would be outsized losses, instead of profits. There was luck again playing the dominant role.

Investing isn't hard
There are two reasons for that.

If you want equity market returns, which would probably be better than alternative investment opportunities, investing is very simple and easy. Just dollar cost average in the index for a long time. Rest assured you will be financially independent sooner than you think you can provided you stick to the game rules. It is possible whether you are a US investor or an Indian investor. Just throw the cash periodically into a low cost index fund, and more importantly, never stop it whether the market is excessively optimistic or pessimistic. Boom or recession, your investments should continue. After a decade or two, the risk in your investments significantly reduces and returns increase. Less than a decade, you could probably win; however, less than five years, anything is possible. So the game is long, quite long.

If you want to be better than the market, be willing to spend time to learn how to understand and value a business. Exhibit behavior to restrain greed, fear, and envy. Grasp the difference between value and price. Buy only when prices are much lower than the intrinsic value of the business. For that to happen you have to believe in market inefficiencies. And then wait for such opportunities; they are not available on an everyday basis; so obviously there is no action for the sake of it. Then you have to wait for the market inefficiencies to correct to make money. You also buy stocks of businesses which have long term competitive advantages, and hold them for a long time in order to reap excess returns. Patience is key to this game. Investing isn't hard for those who are willing to learn, analyze, act, and wait to fructify. Some investments will fail, some will not have an impact, but there will be a few that will reward you very well on an overall portfolio level.