How I invest
You work hard all week and finally, it's payday. That moment when you get paid for your hard work. After a while, if you spend less than you make, cash accumulates in your account. It's a beautiful thing. The question is what do you do with that cash? Buy something new? Keep it in that account? Invest it?
When I first started working as an accountant and this happened, my first thought was I should invest this cash, but how? I had taken investing courses in college but doing it with my own money was different. There are tons of ways to invest. You can invest in stocks, bonds, gold, cryptocurrency, real estate, private businesses, mutual funds, ETFs, art, etc. With so many options available, I read everything I could to find out what suited me.
It didn't take me long to stumble upon Warren Buffett. After reading everything about him and his company, Berkshire Hathaway, I knew buying businesses was how I wanted to invest.
Of course when I say businesses, I mean stocks. Just as I mentioned above about the different ways to invest, there are always many different strategies to use to invest in stocks. Going off Warren Buffett's principles, I invest in stocks the same way I would invest in a local business. I focus on the business results. I look at things like the business history, why do customers choose their products/services?, competition, the financial's and the trends of those financial's, general industry dynamics, stuff like that. After all, stocks are businesses.
So for me, how I invest comes down to deciding what business to buy.
Generally speaking, I am looking for a business that will generate a ton of free cash flow vs what I pay. This can lead me to look at all types of businesses to invest in- good ones, average ones, or even crappy ones.
Over the years, I have determined that it suits my personality to focus on buying fantastic businesses and never selling.
Some qualities of fantastic businesses:
They have some sort of durable competitive advantage.
They earn high returns on their capital.
They have attractive growth opportunities
They need little debt to operate.
Finding businesses like this is hard, especially at a reasonable price. The nature of capitalism makes it so that intelligent business people will constantly look at a successful business and attack it, bringing down the company's advantage and therefore future cash flow. This is the normal outcome. Fantastic businesses typically don't stay that way forever. It's my goal to find and buy businesses that avoid this trend.
To summarize, how do I invest? I look for fantastic businesses, pay a reasonable price, and hold forever.
Keep in mind this is just how I do it, this is not advice. If you want some professional advice on tax or accounting issues for your business, I am a CPA, so please contact me below!