Investing for the long term by Francisco Garcia Parames
*Investing for the long term by Francisco Garcia Parames*
https://www.amazon.com/Investing-Long-Term-Wiley-Finance/dp/1119431190
As an investment advisor who manages portfolio for clients, I like to learn from fund managers who have proven track records. One way to learn from them is to read their books.
Francisco Garcia has gained reputation as Spain's top fund manager by drawing 16% annually from markets for two decades. So his book is definitely worth reading.
According to Francisco, investing for the long term means doing things differently, shunning conventional wisdom, fleeing from the obvious, swimming against the current. It requires reading, thinking, and a willingness to take risks and not make excessive concessions. We must be very alert to our surroundings.
He added that we should try to look where others are not looking, and go beyond the superficial and commonplace. Doing otherwise only achieve mediocre results.
Surprise that he said our university degree is not very important. He said what you learn at 20 years of age is not as important as lifelong education - preferably when it is self-taught. The key thing is to have a spark of interest awoken in us at a particular point in time, which opens up an appealing and limitless path.
There is an exceptional long term correlation between earnings and share prices - I have always mentioned this correlation to my RMs and clients. Hence we are always looking for stocks with rising earnings trend like Alibaba, Alphabet, Amazon, Facebook, Ping An Insurance, Mastercard, Tencent, Visa.
Francisco likes to buy cheap, companies with a low PE ratio and a high dividend yield of average 4% - at current moment DBS, OCBC, China Construction Bank, ICBC and Bank of China fit into the criteria.
Crisis confirmed that high quality companies at reasonable price perform better over the long term than companies which are straight cheap. High quality stocks are proxied by the degree of competitive advantage they enjoy.
Avoid falling into the trap of thinking that we can precisely forecast what will happen. General predictions can be useful, but they should always focus on long term underlying patterns.
One starting point is to search for and analyse the stocks selected by investors with a respectable track record, which have spent a lot of time thinking about them. Part of the work in selecting stocks has already been done for us. From then on its a question of developing one's own criteria and sticking to them consistently.
Once a company has been identified as having high profitability in a stable market, the next step is to identify the underlying reasons why there are barriers to entry allowing an exceptional profit to be earned. Its almost impossible for high profits to be maintained over the very long term, but barrier to entry can keep the wolves at bay for a period of time.
Barriers to entry can be:
- having a cost advantage (in Singapore context, DBS' cost of funding is lowest, owing to its higher share of low-yielding customer deposits has the lowest funding cost among Singapore banks).
- process advantage.
- existence of switching costs (I can think of Oracle and data centres).
- intangible assets (good brands from Apple and Coco Cola).
- network effect, the more people use a product, the valuable it is to client. This makes it harder for new competitions to emerge, who will need to build up this network. Examples are Visa and Mastercard.
He has a strategy to invest into cyclical companies - buying into stock with falling share price that are solely on cyclical effect and not due to some unknown competitivess factor. Cycles always turn around. - In my view Australian dollar fits into above criteria.
Francisco only uses discounting cash flow model on extremely stable and predictable businesses, in other cases it adds practically no value since chances of correctly predicting earnings are minimal.
Pay attention to the weight of stocks in the portfolio. If we are going to assign it a high weight, never doing so if the company is indebted.
Francisco talks about managing clients' money - you are providing clients with a service that they struggle to find elsewhere and which is therefore valued by them. They value it because the returns come with a degree of trust and composure, which enables them to feel that they have this part of their life under control.
https://www.amazon.com/Investing-Long-Term-Wiley-Finance/dp/1119431190
As an investment advisor who manages portfolio for clients, I like to learn from fund managers who have proven track records. One way to learn from them is to read their books.
Francisco Garcia has gained reputation as Spain's top fund manager by drawing 16% annually from markets for two decades. So his book is definitely worth reading.
According to Francisco, investing for the long term means doing things differently, shunning conventional wisdom, fleeing from the obvious, swimming against the current. It requires reading, thinking, and a willingness to take risks and not make excessive concessions. We must be very alert to our surroundings.
He added that we should try to look where others are not looking, and go beyond the superficial and commonplace. Doing otherwise only achieve mediocre results.
Surprise that he said our university degree is not very important. He said what you learn at 20 years of age is not as important as lifelong education - preferably when it is self-taught. The key thing is to have a spark of interest awoken in us at a particular point in time, which opens up an appealing and limitless path.
There is an exceptional long term correlation between earnings and share prices - I have always mentioned this correlation to my RMs and clients. Hence we are always looking for stocks with rising earnings trend like Alibaba, Alphabet, Amazon, Facebook, Ping An Insurance, Mastercard, Tencent, Visa.
Francisco likes to buy cheap, companies with a low PE ratio and a high dividend yield of average 4% - at current moment DBS, OCBC, China Construction Bank, ICBC and Bank of China fit into the criteria.
Crisis confirmed that high quality companies at reasonable price perform better over the long term than companies which are straight cheap. High quality stocks are proxied by the degree of competitive advantage they enjoy.
Avoid falling into the trap of thinking that we can precisely forecast what will happen. General predictions can be useful, but they should always focus on long term underlying patterns.
One starting point is to search for and analyse the stocks selected by investors with a respectable track record, which have spent a lot of time thinking about them. Part of the work in selecting stocks has already been done for us. From then on its a question of developing one's own criteria and sticking to them consistently.
Once a company has been identified as having high profitability in a stable market, the next step is to identify the underlying reasons why there are barriers to entry allowing an exceptional profit to be earned. Its almost impossible for high profits to be maintained over the very long term, but barrier to entry can keep the wolves at bay for a period of time.
Barriers to entry can be:
- having a cost advantage (in Singapore context, DBS' cost of funding is lowest, owing to its higher share of low-yielding customer deposits has the lowest funding cost among Singapore banks).
- process advantage.
- existence of switching costs (I can think of Oracle and data centres).
- intangible assets (good brands from Apple and Coco Cola).
- network effect, the more people use a product, the valuable it is to client. This makes it harder for new competitions to emerge, who will need to build up this network. Examples are Visa and Mastercard.
He has a strategy to invest into cyclical companies - buying into stock with falling share price that are solely on cyclical effect and not due to some unknown competitivess factor. Cycles always turn around. - In my view Australian dollar fits into above criteria.
Francisco only uses discounting cash flow model on extremely stable and predictable businesses, in other cases it adds practically no value since chances of correctly predicting earnings are minimal.
Pay attention to the weight of stocks in the portfolio. If we are going to assign it a high weight, never doing so if the company is indebted.
Francisco talks about managing clients' money - you are providing clients with a service that they struggle to find elsewhere and which is therefore valued by them. They value it because the returns come with a degree of trust and composure, which enables them to feel that they have this part of their life under control.
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