Investment Ideas That Make People Yawn
I'm often struck by how some really good investment ideas seem boring when you first hear them - and how no-one cares.
“Beware the investment activity that produces applause; the great moves are usually greeted by yawns”
- Warren Buffett
I remember the same thing with a friend of mine from university. He was always looking for the most attractive partner. I mentioned to him "What about that decent person right there, who's attractive enough and you know she's a great person". His reply was a bit like that of my hedge fund buddies today: "Yeah but that's not enough for me".
I'll use (as usual...) some Buffett investments that turned out to be good in hindsight, as examples - which of course elicits groans from the readership.
Apple was a sitting duck for around a year in 2016 - trading at 12x earnings, buying back boatloads of stock every year. Yet there it sat - even two years before that, muddling along.
I even passed on it myself, thinking that it wasn't interesting enough... "YAWN... - If Buffett buying it, it was sure to be boring and probably chipping away at 7% per year."
"I can do better than that", I thought to myself.
But slowly, Apple gathered steam. Earnings rose slowly, but too boringly to be noticed. Share buybacks slowly but surely reduced the shares outstanding, pushing EPS progressively higher. And as people started to realize that it was an OK company, the multiple raced upwards.
Of course, hindsight is 20-20 - and Apple turned out to be great.
I wonder, however, what will happen to Occidental Petroleum.
Buffett has been chipping away at it for around $58 per share. Oil being at $70 a barrel helped keep oil boring after Q4 2022. But lo and behold, Occidental is earning around $3bn of FCF, buying back shares and a muted valuation, and probably dropping its cost structure over time.
If oil stays low and everybody continues to not care, Occidental could quietly vacuum up more common and preferred shares without anyone knowing.
Real G's move in silence like lasagne.
- Lil Wayne