Why invest in publicly traded stocks?

The entrepreneur is the driving force of wealth creation and the stock market the largest, most liquid market for entrepreneurial talent.  As of 2019, there were approximately 43,200 publicly traded companies in the world.  In order to make the cut, they all had to overcome a number of hurdles and achieve a certain level of success, reducing the failure rate for their shareholders versus less-seasoned companies.  Due to required disclosures, there is a wealth of information available to the public investor.

What is your edge in the investment game?

First, think long-term and avoid short-term noise.  Seek owner-operators with skin in the game and a willingness to invest today for tomorrow.  Second, be a contrarian.  Recognize and avoid crowd behavior and challenge simple narratives.  Third, view the world through a non-interventionist (Austrian) lens.  In the long run, market forces are far more powerful than bureaucrats and their dictates.  Fourth, be flexible and cast a wide net.  Have a lot of tools in the toolkit and know when to use them.

I think of myself as more of a generalist than a specialist.  To the extent I have specialized knowledge, it is largely in the areas of consumer-facing companies and asset managers.

How can you tell the difference between trends and bubbles?

Trends have skeptics along the way, they’re orderly, back and fill, and have a rational basis.  Bubbles destroy skeptics, demand conformity, go parabolic, and are frenetic and irrational.  They thrive on simple narratives that appeal to the crowd and produce all kinds of absurdities. 

Having experienced my share of bubbles, they’re not that difficult to spot.  Timing is a completely different matter!  Still, there are limits. Insane behavior that feeds on itself and the desire to get rich quick are hallmarks of the top.  Towards the end, the daring are viewed as geniuses and the naysayers out-of-touch idiots.

How should I replicate the model portfolio? Do I just buy at the current prices or wait for the email alerts and slowly build positions?

I can’t advise you.  Every person’s situation is unique.  This is why you may need to hire a financial advisor.

The model portfolio is the way I would manage a substantial portion of my assets, given my tolerance for risk, goals, circle of competence, etc.  It provides a certain level of accountability as well as an illustration of how to manage a hypothetical portfolio in real time. But it’s up to you to figure out how to use this information.  You could take some of your assets and replicate this.  Or you could start to build positions slowly, focusing on those trading at the biggest discounts to my estimate of fair value.  Or just buy positions that make sense to you, that you understand, and have confidence in. 

You should do your own homework regardless.  In doing so, you may quickly eliminate half of my ideas.  Or you may simply incorporate some of the investment themes into your own thinking, but build an entirely different portfolio.