Click here to read the first part of this interview with Qualivian Investment Partners’ Aamer Khan.
Insider Monkey: Who are your favorite investors today? We aren’t asking about investors who were great in the past. We are asking about investors who you think can navigate today’s markets better than most of the other professional investors.
I would operationalize the question to “Who would you prefer to manage your money for the next decade if you did not do it yourself”? The following investors “get it”:
– Chuck Akre of the Akre Focus Fund. He also realized the power of quality compounders (he calls them “compounding machines”).
– Baillie Gifford, the UK based fund manager, has understood the value of a high-conviction, high-concentration portfolio that focusses on compounders, and has an investment model that has neutered the biases accruing from career risk for portfolio managers, and the other aforementioned biases that large institutions develop.
– Caroline Thomas, of Brown Brothers Harriman, is an exceptional asset allocator. She does not invest in stocks directly but researches and identifies superior investors with whom to invest. Her questions to portfolio managers are penetrating and evince a deep understanding of the portfolio management process. One of her favorite questions is: “If you had to buy and hold a stock for five years, which stock would it be?”. It should not be a surprise that, independently, we also came up with that as one of our favorite questions.
Insider Monkey: What are your biggest 5 positions in your portfolio today? Why do you like these stocks?
Almost all our positions are large positions. We only have around 15 stocks. Without ranking them serially in size, here are several of our names:
– American Tower (AMT): Oligopoly with a moat and visible growth as far as the eye can see. It is a play on spending by telecom companies on wireless infrastructure. This, in, turn, is a play on the geometric growth in wireless data consumption, growing at 30% plus for the foreseeable future, with the maturation of 4G networks in developed countries, and the early stages of 5G deployment, and beyond. AMT is replicating its success in the US via International investments in developing countries, where 4G networks are being deployed and matured by the incumbent telcos.
– O’Reilly Automotive (ORLY): Oligopoly in a simple, understandable business which is less vulnerable to disruption (auto parts) and has a long growth runway. The small, independent local auto parts companies are ceding share to the national players who are consolidating the space, and O’Reilly is able to make value-creating acquisitions as well as organically growing store counts in states where it is underrepresented that have secularly increased its market share.
– Adobe (ADBE): A document, media and commerce software company which is at the forefront of the digital revolution. Its products are, by a long way, leaders in their respective segments, and are steadily increasing share. The company’s successful migration from a software license sale to a subscription model in the 2012-2014 time frame has resulted in a visible, recurring and highly profitable revenue model.
Insider Monkey: If you have to pick only 3 stocks that you can buy today and you can’t trade these stocks for 3 years (this means you can’t buy more of them if their price declines, or you can’t sell them if their price increases dramatically) which 3 stocks would you buy? Think carefully because in three years we are going to take a look at the performance of these 3 stocks and determine whether you are a good long-term investor.
The same three stocks mentioned above.
Insider Monkey: What percentage of their portfolios should investors allocate to low cost index funds?
This is a discussion they should have with their financial planner. That said, the general principle should be that If they do not have the time to research stocks, or find a good fund manager, then a large portion should be in low cost index funds.
Insider Monkey: Do you have any advice for small investors who are looking to grow their nest eggs?
Invest in your knowledge base. Read the following:
– John Bogle, The Little Book of Common-Sense Investing.
– Berkshire Hathaway’s Annual Letters. Re-read them every year.
– Pat Dorsey, The Little Book that Builds Wealth.
– Tao de Ching (not a book directly about investing, but one that helps discern the essential from the non-essential).