This interview was originally posted on GuruFocus:
Insight from the co-founder of The Investors Podcast, Stig Brodersen
How did you get started investing? What is your background?
I have a degree and a background in finance. You would think that it is a huge advantage as an investor, and in some ways, it might be so. But, as a finance student, you are being told a lot of nonsense that influences your investment decisions early on. For instance, I was told that the market couldn’t be beat, so there was no reason to analyze the companies I invested in, and that I should just kick back and get the average return as a stock investor. That is so wrong on so many levels. My investing career didn’t take off before I started with a clean slate and studied the best value investors – especially Warren Buffett.
Describe your investing strategy.
My strategy is pretty simple. I only invest in stocks that I understand and only if the price is significantly below the value. In reality, it’s not as simple as it sounds, but hey, investing is so complex that I see no reason to confuse myself.
What drew you to that specific strategy?
The strategy simply made a lot of sense to me. Being rooted in value investing, I’ve found that people either quickly get the strategy or they never will. Many people – including myself in the very beginning – would invest in, say, Starbucks because they like the coffee. Instead, they should ask questions like: What is the competitive advantage and can they sustain it? Clearly, one should also read the financial statements and estimate the intrinsic value, which is something even fewer people do.
Having a value investing approach is as simple as it’s powerful. I might not understand 98% of businesses out there, but if I understand the remaining 2% really well, why would I care?
What books or other investors influenced you?
Warren Buffett has really been my distant mentor. The way that he looks at stock investing is something I almost implement 100% in my own strategy. Being a successful investor doesn’t mean you need to reinvent the wheel and come up with a ground breaking approach. Warren Buffett has been so open with his approach throughout his career that it seemed like a no-brainer to learn from the very best for free.
In the end, it also depends on temperament. It’s hard to mimic an investor who has a completely different skills set and mindset from you. While I’m not even kind of close to being the new Warren Buffett, I think anyone who is patient can successfully implement his principles.
How has your investing changed over the years?
I would probably describe it as going from being a “complete ignorant” to being an “avid learner.” Even though I’ve been in the industry for quite a few years already, I’m constantly surprised and humbled by all that I need to learn in order to improve my skill set. I don’t expect to ever feel that I’m already halfway there.
Name some of the things that you do that other investors do not.
I think I’m quite rational. There are a ton of things I have no clue about, so I simply don’t touch them. It’s really hard because, as investors, we love to expand our investing universe.
Where do you get your investing ideas from?
I speak to people way smarter than me. Either I get my inputs from my Mastermind group on The Investors Podcast or from reading what billionaire investors I really respect are investing in. I do want to say that this is only the first step. Even if someone I really trust is heavily invested in something and has all the good arguments, I won’t ever invest in that stock unless I feel I really understand what drives the stock and know what it is worth.
Do you use any stock screeners?
I don’t mind using Google’s stock screener. I find it quite decent and it’s even free. Usually, though, I go to trusted sources as mentioned above, because the hard thing is not to find companies with great numbers. It’s rather to find companies with a sustainable competitive advantage. You typically need to speak to really smart people to identify that.
Name some of the traits that a company must have for you to invest in.
The company must have a management with integrity in place. I don’t think I can understate the importance of that trait. Even the best companies with the best products and the best culture will undermine itself if the management doesn’t have integrity in abundance. As an investor, I would closely follow what the management has said in the past and what happened. In particular, I would examine how the management reacts during a crisis.
What kind of checklist do you use when investing?
I use a checklist that is partly comprised by quantitative information. For example, I don’t want to pay too much for the cash flow or the sales – that is something you can simply look up.
Then I also have qualitative criteria that need to be met. For instance, I only invest in companies with simple products. I simply find it stressful to invest in the company’s ability to be the leading technology leader in their field. Few companies have the ability to sustain that advantage.
Before making an investment, what kind of research do you do?
I always spend a decent amount of time. How much is decent? Well, to me, it sounds quite silly to spend several days searching for the cheapest phone or gadget to save a few bucks, only to put my life savings in stocks that I haven’t looked at for months. I thoroughly study the financial statements, and again,I speak to people in the industry if possible. There is only so much you can get out of numbers from the past.
What kind of bargains are you finding in this market?
Not really anything, to be honest. While there are many great companies out there, I find very few to be trading at a severe discount. Even investing in companies that might be reasonably priced will have a significant negative impact on a portfolio given the opportunity costs.
How do you feel about the market today? Do you see it as overvalued?
If we look only in the U.S., it has hardly ever been more expensive than today if you look away from 2000. Of course you have 1929, but I think most people will be surprised if they knew how close we are to that level. Also, we started to rival 2008 not long ago.
What are some books that you are reading now?
I’ve just finished reading “The Outsiders” by William N. Thorndike and “Winning” by Jack Welch. I thoroughly enjoyed both of them, but in different ways. In the first book, I learned how you should always think as a capital allocator and not let the media and public image affect your decisions. In Jack Welch’s book, I learned that even thinking like a successful CEO is a terrible way of living your life as an investor, and corporations at the end of the day would compromise your personal values rather than unlock your potential. I’m pretty sure that takeaway wasn’t the intention of the book though. In my opinion, 99% of what we read and see out there caters to corporations, but the capital allocator and the personal values are the ones that should be in focus.
Any advice to a new investor?
Continue to educate yourself. Spend the first hour of every day reading books about investing and life in general, and you would have a huge edge in the investing community. That will not only be reflected in your investment returns, but also in your quality of life.