Jul 05, 2019
By Tye Bousada, portfolio manager
My youngest son had some friends over the other day. During dinner, the conversation turned to what I did as a profession. I explained that I was an investor in businesses. Then they asked how I make my decisions. In response, I walked them through a quick mental exercise that I think is worthwhile sharing with you, as it gets to the heart of how we try to protect and grow the money you have entrusted us with. Here’s the mental exercise:
Imagine you have $500,000 to feed, shelter and clothe your family for the next 30 years. You need to invest this money to protect your family against inflation. Now imagine that I show up on your doorstep and say, “I have a business to sell you, and the price that I put on that business is $500,000.” You reply, “As it turns out, I have that sum to invest, so tell me about your business.” I respond, “The only thing I’ll tell you is that next quarter’s profits will be bigger than this quarter’s profits. You don’t need to know anything else. The quality of the business doesn’t matter, its long-term growth prospects don’t matter, profit margins don’t matter and management doesn’t matter. You don’t even need to know the name of the business. All that matters is that profits in three months will be higher than profits today. Give me your money!”
Would you invest the money that is intended to feed, shelter and clothe your family for the next 30 years?
Read the rest of the article here on >> EdgePoint’s website
Or download the PDF here >>Q2 2019 EdgePoint commentary