The stock market is a giant distraction from the business of investing. – John C. Bogle
If you’re a Deliveroo customer you probably got an email about their IPO. And that got me thinking about investing once again – something I haven’t written about in a while.
I read an article by John Kay recently that argued that the function of stock markets has gone for a place where companies raised money to do business to a place where business founders go to make money for themselves. And that’s because fewer and fewer businesses need outside money to operate. Now, that’s probably not entirely true but the high growth tech stocks that we all see have perhaps created that reputation.
So, should I invest in something like Deliveroo’s IPO? The argument is that they’re creating a platform, something that’s going to be around for a while. Just Eat, its rival’s value has increased by something like 6 times since its IPO. Growth and revenue are what matter.
When it doubt it makes good sense to read Warren Buffett. In his 2020 letter he reminds us that fishing in a pool of mediocre businesses is not a good idea. When you have competition over poor quality you get vastly inflated prices – and the way to deal with that is to manufacture poor quality businesses of your own that you then unload to get the money you need to buy the other businesses you want.
The thing you have to realise is that everyone loves magic – promoters like pulling the crowds in and charging for tickets, the public likes stories and the chance of winning the lottery and illusions about money can go on for a very long time. And, of course, we’ve now established a precedent that you can get away with almost anything as long as the market increases but if it crashes you’ll get helped out by taxpayers. To modify that old adage, when you own a stock it’s your problem. When a group of large players manufacture a stock it’s the taxpayer’s problem.
So, how do you invest your money?
Well, the starting point is to make sure it’s in the market – and a low cost tracker is the way to manage the bulk of the stuff you have. Check – that’s that done.
If you want to invest what’s left in individual businesses pick ones that have a durable competitive advantage, capable management with character and buy at a sensible price. Buffett reminds us that in business there are no points for “degree of difficulty”. If it looks like it’s too much work it’s probably not going to work.
What will work is being patient and letting time work for you. And reducing expenses – that’s the biggest problem for most people, not picking winners but stopping your pocket from being picked by helpers.
So, what should you invest in this year? Bitcoin? Tesla?
Whatever it is, it should probably be something in America.