How I Invest
Now that we are at the start of a new year and a new decade, I thought I’d take some time to write about how I invest. The turn of a new decade is a great time to formulate new goals as well as to look back at how the previous years went. I was first exposed to “investing” back in 2011 when I visited the bank to get a savings account inside of a TFSA (a savings account inside an investment account?). Since then I’ve opened multiple online brokerage accounts and bought a condo in 2015 (disaster story for another time). You know, the usual things you do in your 20’s. I got more into investing around the end of 2017 by listening to podcasts and books. Since then I’ve learned a lot but I mostly had no idea what I was doing during the last decade.
This article will highlight my goals for in investing through 2020’s and beyond. Investing is hard because it requires constant learning and adaptation. On top of that, it’s hard to find an investing style that suits your personality. I meandered through articles, podcasts and books ultimately gravitating towards value investing at the beginning of 2018. Value investing is the discount shopping version of investing. You try to buy stocks that are “on sale”, so to speak.
I’ve settled on a quantitative approach to value mostly because I can only do it part-time. First, I have to credit Andrew Sather at E-investing for Beginners for getting me started with value investing. He’s taken ideas from value investors like Ben Graham, Peter Lynch and Jim O’Shaughnessy to show beginners how to invest. In his free e-book he explains how factors like Price/Earnings, Price/Book and Debt/Equity are key to finding undervalued businesses with low credit risk. I’ve included the link to the website where you can get the e-book at the end of the article. This approach has helped me figure out how to screen for stocks. I usually look for stocks with Price/Earnings < 15, Price/Book value < 2, Price/Sales < 2, Price/Cash < 10 and Market Cap > $50 million. Pictured below is how it looks in my spreadsheet:
Secondly, Tobias Carlisle’s book “The Acquirer’s Multiple” has helped me immensely. Tobias’ research is fundamentally based on one factor Enterprise Value/Operator Earnings. This factor takes a company’s total size (Enterprise Value) and divides it by the income produced by its Operations(Operator Earnings).
The strategy is to hold the cheapest 30 stocks for 1 year periods based on EV/Operator Earnings. The factor was extensively back tested for the period of 1972–2017. Companies with a market cap of $50 million or more compounded at 18.6%, $200 million or more at 17.5% , and $1 billion or more at 17.9% annually. Here’s how it looks in my spreadsheet below:
Since I’m new to this kind of investing, only a portion of my portfolio is dedicated to this strategy. I’m using the Acquirer’s Multiple in only Canadian equities, mostly to get a better understanding of Canadian companies. Below I have an allocation break down of my total investments. As you can see I mostly own index ETFs with some stocks that I never plan to sell. The Acquirer’s Multiple will grow to around 15% as I finish adding stocks over the year.
Thanks for reading!
Resources:
Andrew Sather’s free e-book is at https://einvestingforbeginners.com/
Andrew Sather is @Valuetrapblog on Twitter and his podcast: https://einvestingforbeginners.com/category/podcast-show-notes/
For more information about the The Acquirer’s Multiple here is the website: https://acquirersmultiple.com/
Tobias Carlisle is @Greenbackd on Twitter and his podcast: https://acquirersmultiple.com/podcast/
Disclaimer: The information provided on this blog is not financial advice and it is for informational and entertainment purposes only. Read the full disclaimer.
