Listen to the deep-dive discussion – Position Sizing Matters More Than Stock Picking (31:18 min) “You have your best idea and your tenth-best idea in the portfolio at the same weight. Why?” — The Infinite Investor “The idea of excessive diversification is madness. Going into your seventh one rather than putting more money into…
Category: Capital Allocation
Optimal capital allocation is the CEO’s number one job.
Cash as the Infinite Option
Cash as the Infinite Option The investment industry has a phrase for uninvested capital: “cash on the sidelines.” The metaphor reveals how the industry views cash—as a spectator, waiting to get in the game. During the era of near-zero interest rates, a popular refrain emerged: “Cash is trash.” This framing is not just wrong. It…
The 50/50 Rule: Recycling Asymmetry in Speculative Positions
Context: Why Speculative Positions on a Growth Investing Site? This site focuses on growth investing — the careful selection of high-quality compounders that can generate wealth over decades. The core of the approach is finding businesses with durable competitive advantages, high returns on capital, and long runways for reinvestment. But even a disciplined growth investor…
The Volatility Tax and How to Defeat It: A Mental Model for How to Survive the Maths of the Market
We are all taught the same fundamental truth of investing: Stocks go up over time. We are shown a chart of the S&P 500 moving from bottom-left to top-right and told, “Just buy, hold, and wait.” For the index, this is true. But for individual stocks, this is often a dangerous lie. The reality of…
A Framework for Long-Term Profitable Growth Investing
Investing is a journey that requires a careful blend of financial knowledge, psychological awareness, and a long-term perspective. This essay presents a framework for navigating the complexities of the market and achieving enduring financial success. 1. Foundational Principles 1.1 Long-Term Vision Successful investing is a marathon, not a sprint. It demands a vision that transcends…
The Dynamics of ROE and Revenue: Identifying Great Compounders
In the quest for exceptional investments, one metric stands out as both a guiding light and a rigorous filter: Return on Equity (ROE). However, while ROE is essential, it alone doesn’t tell the full story. The interplay between ROE, earnings growth, and revenue dynamics reveals the true quality of a business—and its potential as a…
Disruptive Innovation and the Return on Capital Imperative
This post explores the Late Harvard business professor Clayton Christensen work on disruptive innovation (The Innovator’s Dilemma: When new technologies cause great firms to fail), which could serve as useful mental model for the equity investor. Disruptive Innovation: The Source of Real Growth Disruptive innovation is an ongoing process inherent to capitalism that occurs whenever…
Share Buybacks, Dividends and Optimal Capital Allocation
A company repurchasing its own shares may suggest that it is no longer able to reinvest its excess cash at high rates of return. Take IBM in the past ten years. Its share repurchase program, even at a so-called “deep discount”, was not necessarily welcomed as it was perceived as potentially impeding innovation and long…