An Hourglass Investing Introduction

An Unfocused Dive into a Future of Focused Dives

Hourglass - Deep Dive Investing

How should one invest? Perhaps by following the greats, the Ben Graham’s, Peter Lynch’s, and the Warren Buffet’s of the world? Buy all their books, study as much as you can from their investing styles, and try to emulate them for the next 40 years? (longer still if you are trying to copy Buffet).

Or perhaps, after a beer or two, your college buddies successfully convince you that ShiteCoin™ is the next big thing; you open you brokerage there and then, investing into some virtual form of the Apollo 13 mission that promises a trip to the moon but ultimately succeeds only in blasting debris (your hard earned dollars) into the lower atmosphere.

Truthfully, the question I posed was rhetorical, so it doesn’t really matter. I’m not going to sit here and pretend I know the answer to all the riddles, or that if you subscribe to my one-time special offer of $299.99 /month, I will reveal the inner workings of the stock market to you. There is no right or wrong answer, really (though ShiteCoin™ is really pushing the boundaries on “wrong answer” side of things). If there are a million ways to die in the west, then there are a million and one ways to invest in the stock market; some of these will set you up for long-term success and a retirement spent on the beach drinking overpriced margaritas (and you don’t even care they’re overpriced because you’re rich!). Still more of them will leave you in financial ruin, with a bit of cash squirreled away under your bed that you swear, by Jove, will never see the light of the stock market again.

Investing in the stock market is an entirely individual process, underlined by your goals and guided by your beliefs, preferences, interests, and, quite frankly, your available time. But there are ways to do it that help to skew the odds in your favour (overpriced beach margaritas) and limit your downside (doomsday prepper impersonations and swearing by Jove, whoever that is). Hint: buying the books of investing greats and swallowing as much knowledge as you can physically stomach? That’s a way to limit risk. Pulling out the brokerage account app on your phone and investing in ShiteCoin™? Well, if you like that kind of risk, the fine folks over at the casino are more than willing to take care of you and your money tonight (you may even get better odds out of them).

The Hourglass investing style leans strongly towards the “swallow knowledge” side of the equation, and is indeed the entire purpose of this series. Research is my investing strength and is therefore central to how I invest and succeed in the market. Finding your strengths is crucial to success, and it comes from knowing your goals; I wouldn’t know where to begin with trading, shorting, technical analysis, timing the market, or whatever other silly jargon some Wall Street Bro could throw at me. I don’t care, ew, gross, get it away from me. That may work for some people and some firms, but it is not in line with my goals or reasons for investing. I want to find great businesses with great opportunities, I want to understand them to a very high level, and I want to own them for 10 years at a minimum. That is the Hourglass Investing strategy.

The Hourglass Investing series will focus on deep dives into individual companies that match my investment goals and the research that goes into each one. My goal is to create material that provides in-depth insights into the companies I have strong conviction in, and create resources for other investors to utilize in their own processes. But first, I want to give you, the reader, a background on my investment strategies; what are my goals, what my investing style is, and how I collect data for these deep dives.

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Investing Style

If you didn’t gather it from the introduction, I want to be sipping margaritas on a beach in retirement. The sooner that comes, the better. Every investment and portfolio decision I make is made with respect to this goal. The Hourglass is both symbolic and central to my purpose; it signifies my long-term investment outlook, and helps to keep me grounded in why I invest. These figurative Hourglasses are filled with sand from the beach I want to be spending my retirement on, and with enough sand to tell the time for 10 years - the minimum amount of time I want to be invested in a business. It is incredibly difficult to find companies that are going to succeed for the coming decade or more. It is harder still to stay invested in companies for so long. With these kind of time horizons, and a passionate aversion to selling businesses before this timeline is complete, knowing the stock I am buying inside & out becomes crucial.

So, research. Knowing as much as I can about a business helps to keep me relaxed and confident in my investment decisions when there are downturns in the market (and there always are, usually right after I buy a stock). This is another central tenet to the Hourglass Investing style. Stress-free. That beach? I want to be relaxed on the beach. But I want to be relaxed before I get to the beach, too. I don’t want to be grey and stooped before my time, withered, pudgy, and in poor health because I spent 40+ years stressing about the stock market. So, I invest the time (see what I did there?) to understand and know the businesses I am investing in so that, once I’ve made a decision and put the money in, I don’t have to stress about anything.

Stress-free investing is central not only to the underlying principle of Hourglass Investing (research!) but also to the Portfolio allocation strategy. Large, outsized bets above 10% of the portfolio size are not part of the investment stratagem. Concurrently, riskier positions in young, growth-stage companies that have higher risks of failure are weighted relatively low, ranging anywhere from 1-3%.

The Hourglass Investment portfolio is very growth-oriented, with a roughly half-and-half mix between value found in large-caps ($20 bn+) with some future growth potential and small- to mid-caps ($1 - $20 bn) with potentially huge opportunity and upside ahead. Every company in the portfolio has passed a checklist, used to gain a snapshot of different characteristics of a company and quickly assess whether or not it is worth investing in. If a company passes, I go through a number of hours hunting down news articles, interviews, commentary, financial data, and other bits of information to gather a thorough understanding of the business.

After this research stage, I create a write-up, summarizing everything I believe to be of importance. Usually, I have already determined whether I want to invest in a business or not before I create the write-up. The purpose of the written summary is more of a self-test - do I know enough about the business? Can I summarize this to a 5-year old? What about a business student? Ideally, I know enough about the business at this stage to “dumb down” my explanation (sorry, business student!) or explain it at a very high level (you’re welcome, 5-year old!). If I am struggling to create a write-up, it is usually a giveaway that I have not learned enough about the business to make an investment, in which case I need more research.

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Hourglass Community

One of the reasons I decided to take my talents to this platform (which, given my talent level, didn’t take all that long) was that I was essentially creating ready-to-publish investment research through my personal process, described above, where it was then archived into the dusty annals of my hard drive. Perhaps it could serve a higher purpose on the Internet, I thought to myself, where it could go on to haunt and embarrass me later in life.

Maybe there are 2-3 people that could benefit from this, however, so this is for you guys. I will post an article every two weeks analyzing a company, beginning with the companies in my current portfolio. As I eat through my backlog of business deep dives and find exciting new companies to research, I will branch out beyond the Hourglass portfolio to include fresh deep dives. Deep dive articles will take you through my research process from checklist to summary and provide a succinct resource with which to research individual companies.

Once a month, I will publish an additional article on basic financial literacy and financial planning that can be used as a resource for beginners to dip their toes into investing and get an understanding of how to invest for the future BUT*** mandatory disclaimer incoming - I am NOT a certified financial planner. I am NOT sure I even know what the hell I’m doing. I do NOT know what I ate for breakfast this morning. So while I am happy if my deep dive and financial literacy articles are useful resources for you to use, please do not take them as financial advice, don’t buy or sell stocks based solely on what you read, and most importantly, don’t sue me please.

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Future

The first article will be posted on April 26th and will cover my views on the basics of personal finance and investing so that readers and beginners can get a sense of how to approach investing, assess investment strategies, and determine whether or not the Hourglass Investing process fits in with their goals.

My first deep dive will be released on May 3rd on Stem, Inc, an exciting (I think, anyways) small-cap company creating renewable energy software solutions. This company is a sizeable chunk of my portfolio and, as a young growth company, quite risky.

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