Steady and Consistent Approach to Investment
Finding undervalued and high-potential companies on a steady and consistent basis is the determining factor of value investing. Being steady and consistent can be read as being “boring”, but this is a key difference maker.
Tech companies, in the contemporary era, bring high volatility to the table due to their non-predictable nature. The dominant ones, including Google, Meta and Amazon, are just small islands of “some” predictability in an ocean of unpredictability. Tech companies are always good options to invest for a short-term perspective, but it will not compound. We should not seek short-term price increases, but long-term steady value increases.
One important addition is that tech companies often burn cash in the beginning, and may take years to become profitable. They may also have complex customer acquisition techniques, and regarding the possibility that customers may change their demands in the fast growing tech industries, the supply is destined to be updated regularly, resulting in more unpredictability.
For long term value investing, focusing on “boring” businesses is a better option. Firstly, boring businesses are highly predictable, and ironically, for short-term “traders”, that is the reason why they are boring. For long term growth, predictability is a key component that we cannot oversee. A dental clinic, if it keeps well-trained staff with a nice attitude towards the patients, will always have steady cash flow. Tech developments will not directly threaten the operations of a dental clinic.
Logistics, car washes, cleaning services, waste management businesses, insurance companies, storage services, furniture retailers… They are all boring, and they are all consistent.
They don’t attract venture capital. They don’t attract trendy founders and flashy media. They are doing work for the sake of their business. They all have fewer unknowns, and that brings more predictability and less risks. They have understandable models, through which the investor can accurately predict the value of the investment.
Being slightly above the benchmark, S&P500, on a continuous basis is better than investing in assets with the hope that its price will increase. The first is investment. The second, speculation.
