I’ve thought a lot about doing my own research in the sense of sourcing ideas.
When it comes to idea-generation, there are essentially two extremes:
- “Old school Buffett”
- Index investing
“Old school Buffett” is the investor equivalent of a music DJ “digging in the crates”– a tireless, thorough examining of every idea possible. Sifting, examining, turning over every rock. Buffett’s claim that he started with the A’s in the Moody’s Manuals.
Index investing is the opposite. Index investing is the admission, “I have no ideas.” It is resignation. It is buying everything, instead of buying something.
Most investors’ idea-generation process lies somewhere on the continuum between the two extremes.
I do believe that, especially because I am learning a lot right now, it is best for me to “do my own research” and to come up with as many ideas as I can on my own. To hang closer to the rock-turning end of the spectrum. I also believe that you should always be able to understand and vet an idea on your own that you receive from someone else (no “Investment From Authority”).
However, I have also come to realize that:
- The greatest investors borrow liberally from others
- Time is scarce
The second part is probably more important than the first; the first is about soothing a guilty-conscience, the second is about embracing a meaningful constraint of reality and not hanging oneself by a determination to be completely original.
In consideration of these facts, this the value I see in reading good investment blogs– they are chock full of ideas and they’re almost all being given away for free. A lot of the hedge fund guys profiled in “More Money Than God” (review coming) were notorious for getting ideas from others (mostly brokers) and learned to pay for the best ideas and thereby cultivate a network of hard-working, reliably intelligent investors who were creating actionable ideas for them all of the time. Following investor blogs is kind of similar except you don’t pay for the ideas you get. You look for people with styles you agree with, who demonstrate competent analytical skills, then you just follow them and pick off the ideas you like best.
You could also do the same with newsletters. For example, why should I spend hours and hours picking through net-nets on my own (aside from the exercise and practice) to come up with most likely the exact same ones that Geoff Gannon is giving away in his GuruFocus newsletter? Geoff Gannon is fucking smart (and I use the expletive to connote a certain level of emphasis, enthusiasm and awe, here) and if anyone is going to pick net-nets well, it’s probably him.
For $289/yr, I can have Geoff Gannon pick net-nets for me and spend that time digging up other ideas. I also get two other newsletters (the Buffett-Munger one sounds interesting and Gannon might write that, too, the Magic Formula one I am less interested in but still could have value) and a premium stock screener. That could end up paying for itself pretty easily over time. He picks 1 NCAV a month, so it’s essentially $25 an idea. It’s like paying a few extra commissions at Scottrade on each order.
I think I will continue to do a lot of “original” research early on and overall as my life as an investor goes on. But I think there are creative, low-cost ways to get smart people to do a lot of the heavy lifting for you which can free you up to spend precious time and brainpower on other problems/opportunities. I think smart investors learn to leverage themselves that way.
Until recently, it used to really bother me that I might take an idea I got from a good blog and put money into it. It didn’t seem “right” to make money that way. I was even tempted to purposefully NOT invest in the good ideas I found there, believing them to be “tainted” merely by the fact that they weren’t my ideas and I hadn’t come up with them.
But, I feel I’ve faced that guilt and banished it from my investor conscience, now. A fellow investor at CreditBubbleStocks.com reminds me that there is no credit for originality in investing; only in being right by having the best judgment.
A House Rises 