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Have patience and let your cash pile up

Updated: Mar 15

In the book “Richer, Wiser, Happier”, Matthew McLennan, co-head of Global Value, shares how he regards the economy as an ecology in which the current lords of the jungle will eventually be defeated by disruptive technology and new competitors.

Because of this view, McLennan attributes his success to a consistent focus on “risk mitigation,” “error elimination,” and “prudent acts of omission.” In short, “it’s winning by not losing.” Similar to the two rules of Warren Buffett.

Warren Buffett Quote | The Globetrotting Investor
Source: Seeking Alpha

So how can we do that?

First, don’t chase hype stocks. Instead, do your research to identify what McLennan puts it “persistent businesses that are less vulnerable to complex competitive forces.”

Next, find companies that are built for resilience. Yes, they are usually the boring and unsexy ones, but they are great businesses. You invest to make money, not to find sexy companies.

And lastly, be patient. Investing is boring. Have the discipline to let cash pile up, instead of feeling obliged to invest when prices are too high for comfort. Always remember that opportunities to buy “good businesses at good prices” tend to arise erratically, often amid outbreaks of volatility. It is also not enough to be conservative. You need to have the confidence to put cash to work when others feel least comfortable doing it.

This is what we do as value investors. Identify companies with a wide economic moat. Have the patience to wait for a good entry. And in the meantime, let cash pile up instead of feeling obliged to invest. You will make money in the long run following these principles. In short, it is winning by not losing.


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