How much time do you spend on investing

[tlee19802]

Hi,

 

I have made a lot of rookie mistakes in the past due to not understanding my investments or not doing enough research (for example, buying shipping companies when they traded at low LTM EBITDA multiples).  Lately, I am finding that is it harder for me to concentrate on finding investments due to work, life, and time constraints.

 

How much time do you guys spend on research? How are your YTD returns? Do you work solo, with someone, or do someone manage your money?

[berkshire101]

I'm not on the level anywhere near the likes of Packer, Eric, Gio, Sanjeev, etc.  But here's my 2 cents.

 

I'm in the Buffett camp of buying high ROIC companies at reasonable prices.  I differ in that I prefer to look in the small to mid size range.  As for how much time, it depends.  Some businesses are just easier to understand than others.  For example, medical equipment and services companies.  I work with hospitals and deal with pharma companies, insurance, software, etc.  So I can see why changes are slow, there's a lot of regulations, and systems are outdated.  Examples of such companies that have a competitive advantage are MLAB, QSII, CPSI, MD, USPH, and ISRG. 

 

As for research process.  I usually compute at least 10 years worth of financial data.  That can take anywhere from 30-60 mins depending on how difficult it is to get the data.  Then I read about 5 years worth of shareholder letters and 10-k files.  That can take maybe a day or two.  If there are investor presentations then I'll look at those too.  Then I'll take a look at their recent quarterly report to get a feel of how the company is performing.  With all that information, I sit down and write a quick one or two paragraph description of how the company makes money, where it might be in 10 years, possible risks, etc.  And then I determine a price I'm willing to pay.  It's usually 20-30% below the historical 10 year average ratios of like P/E, P/B, P/S, etc.  If it's not, then it goes on my watch list.

 

As for YTD, I'm doing slightly better than the S&P 500.  At around 15-16%.  I've been investing for about 5 years and my returns since inception are around 22%.  And I mainly do my own research. 

 

Most of the research is done prior to making an investment.  Afterwards, I usually check up on the company once a year when the annual report is release.  So the process goes like this: 

- Screen companies

- Gather and compile data

- Develop a thesis and value

- Is the price right? If yes, buy.  If no, it goes on watch list.

- And check up on investment once per year.

 

Best of luck to you!  I too work a 40 hour job, but it's with the state so there's some downtime here and there to perform research at work. :)

[Mephistopheles]

I usually read about 500 pages of 10-k's, 10-q's, transcripts, newspapers, industry journals, and books per day (sometimes more, sometimes less). I only invest in any given stock after doing a bare minimum of 500 hours of research on that stock.

[gurpaul88]

psshhh 500... your slacking  ::)

[augustabound]

psshhh 500... your slacking  ::)

 

He was being sarcastic.

 

Todd Combs reads 500 a week but was mis-quoted for 500 a day and Ted Weschler spends 500 hours before he buys a stock typically.

It was discussed in great length last year where multiple board members pondered how to read more to be like Todd and Buffett.

[gurpaul88]

psshhh 500... your slacking  ::)

 

He was being sarcastic.

 

 

As was I  :D

[rukawa]

Lately, I am finding that is it harder for me to concentrate on finding investments due to work, life, and time constraints.

 

I had this problem for 4 years and I recently solved it. My solution was to develop a habit. The key to creating a habit is consistency. Initially it doesn't matter what you, all that matters is that you are consistent. Initially my habit was to spend 1 hour a day on investing. I found this too difficult so I dropped it to 15 minutes. I maintained that for 60 days without exceptions. I used the Seinfeld calendar to keep track of progress.

 

After this I upped my time to 1 hour and maintained this for 2 weeks. Then 1 hour 15 minutes and maintained this for another 2 weeks. Now I am at 1 hour 30 minutes a day. My eventual goal is 3 hours a day (about the amount of time Berry spent when he was a surgeon) but I am delaying any increases until I deal with other areas of my life that need attention.

 

In addition I spend 2 hours a day commuting during which I read WSJ, Financial Times and occasional business magazines. This habit was much easier to develop because there was a discrete and well-defined trigger for the habit (getting on the bus).

[compoundinglife]

I usually read about 500 pages of 10-k's, 10-q's, transcripts, newspapers, industry journals, and books per day (sometimes more, sometimes less). I only invest in any given stock after doing a bare minimum of 500 hours of research on that stock.

 

Hi Ted!  ;D

[rishig]

I'm not on the level anywhere near the likes of Packer, Eric, Gio, Sanjeev, etc.  But here's my 2 cents.

 

I'm in the Buffett camp of buying high ROIC companies at reasonable prices.  I differ in that I prefer to look in the small to mid size range.  As for how much time, it depends.  Some businesses are just easier to understand than others.  For example, medical equipment and services companies.  I work with hospitals and deal with pharma companies, insurance, software, etc.  So I can see why changes are slow, there's a lot of regulations, and systems are outdated.  Examples of such companies that have a competitive advantage are MLAB, QSII, CPSI, MD, USPH, and ISRG. 

 

As for research process.  I usually compute at least 10 years worth of financial data.  That can take anywhere from 30-60 mins depending on how difficult it is to get the data.  Then I read about 5 years worth of shareholder letters and 10-k files.  That can take maybe a day or two.  If there are investor presentations then I'll look at those too.  Then I'll take a look at their recent quarterly report to get a feel of how the company is performing.  With all that information, I sit down and write a quick one or two paragraph description of how the company makes money, where it might be in 10 years, possible risks, etc.  And then I determine a price I'm willing to pay.  It's usually 20-30% below the historical 10 year average ratios of like P/E, P/B, P/S, etc.  If it's not, then it goes on my watch list.

 

As for YTD, I'm doing slightly better than the S&P 500.  At around 15-16%.  I've been investing for about 5 years and my returns since inception are around 22%.  And I mainly do my own research. 

 

Most of the research is done prior to making an investment.  Afterwards, I usually check up on the company once a year when the annual report is release.  So the process goes like this: 

- Screen companies

- Gather and compile data

- Develop a thesis and value

- Is the price right? If yes, buy.  If no, it goes on watch list.

- And check up on investment once per year.

 

Best of luck to you!  I too work a 40 hour job, but it's with the state so there's some downtime here and there to perform research at work. :)

 

I applaud the incredible amount of work. As an engineer by profession, I also was naturally inclined to doing "deep" research of this nature. However, after a few years of investing, I re-read Seth Klarman's Margin of Safety book and the following paragraph stood out for me and hit me like a ton of bricks.

 

"Some investors insist on trying to obtain perfect knowledge about their impending investments, researching companies until they think they know everything there is to know about them. They study the industry and the competition, contact former employees, industry consultants, and analysts, and become personally acquainted with top management. They analyze financial statements for the past decade and stock price trends for even longer.

 

This diligence is admirable, but it has two shortcomings. First, no matter how much research is performed, some information always remains elusive; investors have to learn to live with less than complete information. Second, even if an investor could know all the facts about an investment, he or she would not necessarily profit.

 

This is not to say that fundamental analysis is not useful. It certainly is. But information generally follows the well-known 80/20 rule: the first 80 percent of the available information is gathered in the first 20 percent of the time spent. The value of in-depth fundamental analysis is subject to

diminishing marginal returns.

 

Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen."

[berkshire101]

the first 80 percent of the available information is gathered in the first 20 percent of the time spent. The value of in-depth fundamental analysis is subject to

diminishing marginal returns."

 

 

I think it was Buffett who said you don't need to know a man's exact weight to know if he's fat or not.  I suppose if you're buying companies in distressed situations then having constant information will ease your concerns.  I'm not smart enough or have the balls (I'm Asian XD) for those types of investments.  Maybe one day, but not today. 

 

@tlee19802

I think if you're passionate about the investment process (research, analysis, etc.) then you'll find time.  It's like exercising.  If you want to get in shape then it'll be a habit and daily routine.  Same goes for investing.

[LC]

Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen."

 

Guy/Mohnish said something to the effect of "uncertainty does not equal risk". So one thing I try to look for is places with high uncertainty but low risk. Perhaps a low cost oil producer would fit this bill, looking at today's energy landscape.

[oddballstocks]

Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen."

 

Guy/Mohnish said something to the effect of "uncertainty does not equal risk". So one thing I try to look for is places with high uncertainty but low risk. Perhaps a low cost oil producer would fit this bill, looking at today's energy landscape.

 

Maybe look at midstream? Was at an event where an energy insider spoke, discussed industry dynamics. Said most midstream players have take or pay contracts for up to 20 years out.  Seemed like buying into one of these guys sold down with oil might be good.

[thepupil]

Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen."

 

Guy/Mohnish said something to the effect of "uncertainty does not equal risk". So one thing I try to look for is places with high uncertainty but low risk. Perhaps a low cost oil producer would fit this bill, looking at today's energy landscape.

 

Maybe look at midstream? Was at an event where an energy insider spoke, discussed industry dynamics. Said most midstream players have take or pay contracts for up to 20 years out.  Seemed like buying into one of these guys sold down with oil might be good.

 

some of these companies are really great, high quality assets. problem is they aren't cheap and because they are high multiple, not super high growth assets, they have lots of duration/rate risk in my view.

 

Check out MMP: 3.5% yield and up 20% YTD despite all the noise. I love the company, but it's tough to love here; the selloff just made it get slightly less expensive. To me, buying the best of breed midstream guys is kind of like buying the trophy REIT's at sub 4% (or even sub 3%!!!) yields. Great assets, but the steamy valuations have to make you a little queasy in that a lot of growth/capital markets being compliant is already baked in.

[compoundinglife]

psshhh 500... your slacking  ::)

 

He was being sarcastic.

 

Todd Combs reads 500 a week but was mis-quoted for 500 a day and Ted Weschler spends 500 hours before he buys a stock typically.

It was discussed in great length last year where multiple board members pondered how to read more to be like Todd and Buffett.

 

I am changing my research process to only buying companies mentioned on COBF once the thread has 500 pages.  :D

[Guest Schwab711]

I'm not on the level anywhere near the likes of Packer, Eric, Gio, Sanjeev, etc.  But here's my 2 cents.

 

I'm in the Buffett camp of buying high ROIC companies at reasonable prices.  I differ in that I prefer to look in the small to mid size range.  As for how much time, it depends.  Some businesses are just easier to understand than others.  For example, medical equipment and services companies.  I work with hospitals and deal with pharma companies, insurance, software, etc.  So I can see why changes are slow, there's a lot of regulations, and systems are outdated.  Examples of such companies that have a competitive advantage are MLAB, QSII, CPSI, MD, USPH, and ISRG. 

 

As for research process.  I usually compute at least 10 years worth of financial data.  That can take anywhere from 30-60 mins depending on how difficult it is to get the data.  Then I read about 5 years worth of shareholder letters and 10-k files.  That can take maybe a day or two.  If there are investor presentations then I'll look at those too.  Then I'll take a look at their recent quarterly report to get a feel of how the company is performing.  With all that information, I sit down and write a quick one or two paragraph description of how the company makes money, where it might be in 10 years, possible risks, etc.  And then I determine a price I'm willing to pay.  It's usually 20-30% below the historical 10 year average ratios of like P/E, P/B, P/S, etc.  If it's not, then it goes on my watch list.

 

As for YTD, I'm doing slightly better than the S&P 500.  At around 15-16%.  I've been investing for about 5 years and my returns since inception are around 22%.  And I mainly do my own research. 

 

Most of the research is done prior to making an investment.  Afterwards, I usually check up on the company once a year when the annual report is release.  So the process goes like this: 

- Screen companies

- Gather and compile data

- Develop a thesis and value

- Is the price right? If yes, buy.  If no, it goes on watch list.

- And check up on investment once per year.

 

Best of luck to you!  I too work a 40 hour job, but it's with the state so there's some downtime here and there to perform research at work. :)

 

I applaud the incredible amount of work. As an engineer by profession, I also was naturally inclined to doing "deep" research of this nature. However, after a few years of investing, I re-read Seth Klarman's Margin of Safety book and the following paragraph stood out for me and hit me like a ton of bricks.

 

"Some investors insist on trying to obtain perfect knowledge about their impending investments, researching companies until they think they know everything there is to know about them. They study the industry and the competition, contact former employees, industry consultants, and analysts, and become personally acquainted with top management. They analyze financial statements for the past decade and stock price trends for even longer.

 

This diligence is admirable, but it has two shortcomings. First, no matter how much research is performed, some information always remains elusive; investors have to learn to live with less than complete information. Second, even if an investor could know all the facts about an investment, he or she would not necessarily profit.

 

This is not to say that fundamental analysis is not useful. It certainly is. But information generally follows the well-known 80/20 rule: the first 80 percent of the available information is gathered in the first 20 percent of the time spent. The value of in-depth fundamental analysis is subject to

diminishing marginal returns.

 

Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen."

 

I spend about 5-6 hours a day reading (pages depend on the topic) all sorts of topics that I like to follow (really only non-fiction and a few newspapers) but corporate/stock news (SA) and 10-k's eat a lot of the pie (I order hard-copies and they are scattered throughout my place. Many of a fine lady has recoiled in horror at the at the conditions). This fits my personality so it's not really a sacrifice. Do what you like and are good at, find your comparative advantages.

 

However, with all that reading, I completely agree, rishig! I like the 80/20 principle for most aspects of life. I generally know within 10 hours whether it's a yes or no (it's usually <10 minutes and no). I stick with the Seinfeld Girlfriend System. I spend most of my time researching companies with businesses I really like. I try to learn as much as possible, make some conservative bets on long-term prospects of industry/business (whatever applicable), and come up with a valuation range. The valuation is almost always FCF and earnings power based. I have yet to be interested in a company due to low P/B. I really like this quote by Klarman and Margin of Safety is the best investing read in my opinion.

 

Couple quotes that truly sum-up my Investment Strategy: (I'll save some of my material and steal from WEB)

1. Don't lose money

2. Don't forget Rule #1

3. I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years. ROI = [((1 + ME)*(1 + OR)^T) -1];    (ME = Multiple Expansion (EM[t] - EM[1]/EM[1]); OR = Compound operating earnings growth over time T; T = Time (years)). How are you getting your returns?

4. "Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down." (See #3)

5. Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can't produce a baby in one month by getting nine women pregnant.

6. "If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value." (Have I hammered home #3 enough?)

7. It is not necessary to do extraordinary things to get extraordinary results.

- We've all missed easy/obvious great investments in the past (I've missed a ton I was very confident in by not swinging or a few early weak dribblers). Prepare a list of great businesses and valuation ranges; be ready to pounce at all times.

8. "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

- If I could start my own business today, I'd much guarantee I end up like FICO/V/MA than in some industry where the factory was 50% off.

9. Chains of habit are too light to be felt until they are too heavy to be broken.

- Don't wear out a single path or you'll be in a rut

 

A = P * e^(r*t): No need to synthetically create it with trading.

[augustabound]

I am changing my research process to only buying companies mentioned on COBF once the thread has 500 pages.  :D

 

Don't forget the 80-20 rule, you can cut that down to 100 and you'll free up so much time.  ;D

[oddballstocks]

I spend about 5-6 hours a day reading (pages depend on the topic) all sorts of topics that I like to follow (really only non-fiction and a few newspapers) but corporate/stock news (SA) and 10-k's eat a lot of the pie (I order hard-copies and they are scattered throughout my place. Many of a fine lady has recoiled in horror at the at the conditions). This fits my personality so it's not really a sacrifice. Do what you like and are good at, find your comparative advantages.

 

 

I am not a fine-lady but that sounds pretty dismal to me too.  Maybe worth spending a little time today cleaning?

[Kraven]

I spend about 5-6 hours a day reading (pages depend on the topic) all sorts of topics that I like to follow (really only non-fiction and a few newspapers) but corporate/stock news (SA) and 10-k's eat a lot of the pie (I order hard-copies and they are scattered throughout my place. Many of a fine lady has recoiled in horror at the at the conditions). This fits my personality so it's not really a sacrifice. Do what you like and are good at, find your comparative advantages.

 

 

I am not a fine-lady but that sounds pretty dismal to me too.  Maybe worth spending a little time today cleaning?

 

Oh, I thought he was saying that the many a fine lady recoiling in horror at the conditions fits his personality so it's ok.  So it sounded like this is the kind of thing he looks for.

[tede02]

I re-read Seth Klarman's Margin of Safety book and the following paragraph stood out for me and hit me like a ton of bricks.

 

Those paragraphs are awesome.  Thanks for posting.  As someone with perfectionist tendencies, I've always struggled with thinking I need to memorize a 10k before I make a decision.  I've learned more and more over time that its really about getting the big idea right.  So much of everything else is just noise. 

[Mephistopheles]

Didn't Klarman hire an analyst who worked on only Enron bonds for a year or two? Must have been a hell of a lot of research done for that one.

[Liberty]

Didn't Klarman hire an analyst who worked on only Enron bonds for a year or two? Must have been a hell of a lot of research done for that one.

 

The way I see it, there can be two ways to make money. One is by getting the big things right, as tede02 just said. Cutting through the noise to see that company XYZ is undervalued and good things should happen to it over time or that company ABC is super high quality and should keep outperforming over time.

 

Another way is to know things that other people don't know because they haven't done the work. So Michael Burry reading CDO prospectuses or some analyst spending a year sorting through Enron bonds might mean that they are almost the only people with that information, because it was hard to find and most people didn't bother. That's kind of the argument in favor of microcaps. They're too small for pretty much all funds and institutional investors, so very few people are looking at them. If you do, you might be one of the very few people with the info, so it's not priced in properly.

 

I don't think these are mutually exclusive.

[rpadebet]

 

Another way is to know things that other people don't know because they haven't done the work. So Michael Burry reading CDO prospectuses or some analyst spending a year sorting through Enron bonds might mean that they are almost the only people with that information, because it was hard to find and most people didn't bother. That's kind of the argument in favor of microcaps. They're too small for pretty much all funds and institutional investors, so very few people are looking at them. If you do, you might be one of the very few people with the info, so it's not priced in properly.

 

 

The thing that I worry about in "less crowded" investment areas is not the competition from fellow buyers, but the motivation of sellers. I think it is incredibly important to understand who is selling to you and what their motivation is. Without that piece of insight, for all you know, you could be the dumb money at the table.

[Liberty]

 

Another way is to know things that other people don't know because they haven't done the work. So Michael Burry reading CDO prospectuses or some analyst spending a year sorting through Enron bonds might mean that they are almost the only people with that information, because it was hard to find and most people didn't bother. That's kind of the argument in favor of microcaps. They're too small for pretty much all funds and institutional investors, so very few people are looking at them. If you do, you might be one of the very few people with the info, so it's not priced in properly.

 

 

The thing that I worry about in "less crowded" investment areas is not the competition from fellow buyers, but the motivation of sellers. I think it is incredibly important to understand who is selling to you and what their motivation is. Without that piece of insight, for all you know, you could be the dumb money at the table.

 

Absolutely (though the same thing is just as valid when buying, say, AAPL -- why are they selling?).

 

Value investing stars always say "don't follow the crowd" "think for yourself", "do your own work", but it's actually much easier to follow the value crowd and invest after Buffett, Pabrai or Berkowitz or some great investor on this board has done the work and bought something (cloning, no bonus points of originality, etc). If you go out on your own and screw up, you'll have nobody to blame but yourself.

[innerscorecard]

It seems to me that originality and doing a lot of your own proprietary research have a negative effect on quality of life for most (unless you have no other interests) but a positive effect on your career prospects in the investment industry, while intelligent cloning has the exact opposite effect.

[innerscorecard]

I think I'm spending too much time on investing. I just had a dream last night that Sardar Biglari got arrested for personally poisoning the food of other competitors in some sort of competition. The Biglari Holdings thread here then got so hot that it crashed the server.