Introducing: Diamonds in the Roughage, how $50,000 investments can change the rest of your life
With the nudge of wise direction you can change the course of your life by investing only $50,000 in a single idea which can turn into $1 million in the span of 5 to 10 years while maintaining top notch liquidity along the way. It is my intention to give you the BEST ideas for your investment consideration, and I’ll finish this introduction with an “equity diamond in the roughage” ticker symbol worthy of my title. My investment ideas will be REAL companies, not pink sheet stocks or frauds or nonsense. My background involved investing hundreds of millions of dollars at a time; SO ADDITIONALLY, my ideas will be just as tuned for turning $50 million into $1 billion as it will be for turning $50 k into $1 mm. I wish to provide EVERYONE who has savings large or small with what I call “equity diamonds in the roughage” — whether you’ve saved $1,000 or $1,000,000,000. The investment food I’ll be providing is equally as digestible by billionaire Carl Icahn as it will be for a small-town undertaker with tens of thousands in savings (no, I’m not assimilating Icahn who I admire with undertakers in any way, nor am I disrespecting those practicing the ancient business of the deceased)
Do you identify with the following problems?
- CASH: You finally have some excess hard-earned cash beyond what you’re spending
- OBJECTIVE: You want to change your life by making fantastic returns with it.
- TIME: You work hard & don’t have extra time outside your career & family.
- TRUST: You don’t trust the financial industry
I cannot guarantee the type of returns you can get with the ideas I will give you; I can only guarantee that I will present my compelling investment ideas which over time will judge themselves using the timestamp of Medium (or a future time stamping media P2BNL) and the track-ability of future stock prices achieved. The great thing for YOU will be the ability to NOT take my word or stock pick, but judge me on those timestamped ideas such that you can decide for yourself if my NEXT (or past or current) ideas are worth your keen interest. At the end of the day, the person you can most trust is you (your own judgement and experience-honed instincts)
You shouldn’t trust me, you should just consume what I feed you and decide for yourself. The only thing I will NOT give you is my method for finding great investment ideas, but if you consume what I offer there’s a chance you might figure my methodology out anyway. My “ace in the hole” is my methodology, which is proprietary and has decades of work behind it, and not for sale (unless you bid very high). I’m confident my methodology will work based on many years of honing it in practice and hopefully my method will provide you answers to the question “what is the best investment right NOW?”.
Pretend I’m an investment-idea-food-factory who produces a foodstuff you can consume for free if you like, but I’m not going to give you my factory. Below is a summary of what you should expect when you consume my idea-food:
The goal of my publications is to introduce to you the best researched investment ideas you perhaps don’t have time to find — investments which can change your life after a 5–10 year time period. I’ll give you the ideas, and you make the call whether to invest in those ideas. Furthermore, my ideas will be written here on the internet with a time-stamp, one you can measure for yourself as those ideas age — pass or fail. I don’t promise there will be very many ideas, as great long term stocks are as infrequent as they are obscure. For example: Think about the last decade, what has been a great stock outside of a small handful (“FANG”?)?
First let me define “Equity Diamond in the Roughage”:
- EQUITY means stocks, as in publicly traded companies or assets with ticker symbols. I reserve the right to include assets such as commodities or currencies.
- DIAMOND means quality, the highest quality companies, the best in class. As I said, I will not be providing you with one day speculations, illiquid penny stock ideas, or hair-brained technical-analysis chart-monkey stuff. Think Apple, Google, Amazon, Facebook, Netflix, Under Armour, Priceline/Booking.com, SodaStream, etc…
- ROUGHAGE means high upside for you bc “the diamond has poop on it” — it’s covered in “roughage”. Anyone who reads the news regularly can tell you Google and Apple and Under Armour are great companies, this becomes obvious after a certain amount of time. By the time it’s obvious, however, the opportunity to turn $50,000 into $1,000,000 is gone. What good is that? If I provide market-equaling returns why not just invest in a index-tracking mutual fund or ETF? Go buy Facebook or Proctor & Gamble? Meh. That’s advice you can get a dime-a-dozen from thousands of people in the finance industry, and it’s worthless besides. Anyone putting you into stocks like that in 2019 is feeding you the obvious, and extracting a fee for it. To give you VALUE I must give you stock ideas which you (but especially the general public and financial press and Wall Streeters) will dislike. I can assure you the stock ticker i give you at the end of this introduction you may not like, at all, and if I’d given it to you in the late Summer of 2017 when I labelled it an Equity Diamond in the Roughage (at $2 more or 20% premium than where it trades now) you would have nearly gagged with the rest of Wall Street and the mainstream financial press at the time.
Now that I’ve defined the product, here’s the two most important pieces of information required for your investments to perform:
#1 Allocation of Capital
You have $100,000 to invest, but how do you split it amongst different ideas or themes or investment classes? How MUCH should you invest in a single idea, and how much should you spread amongst different classes of investments? While only a backward time traveler could possibly get allocation perfect (disclosure: I’m not a time-traveler but my ideas might seem like it), there’s always only ONE CORRECT answer and your goal should be to be as close to that answer as possible to achieve maximum gain and minimum risk on that idea. What I will NOT break out, because it’s already part of allocation, is timing. Many investment jockeys talk of timing, and timing is most definitely important; however, my method attempts to minimize the need for timing (the most difficult problem in all of investment) by paying only attention to allocation of capital (or position size).
#2 Improperly valued QUALITY COMPANY
I search NOT for a VALUE investment like Graham & Dodd, Warren Buffetted & Charlie Munger, or any of their many many followers. The only thing I share with them is the size of companies I’ll recommend would allow THEM to invest alongside someone with only $10,000.
I search NOT for GROWTH investments like Peter Lynch or Jim Cramer. The only thing I share with them is that my Equity Diamonds SHOULD grow. However, my stock picks should provide unseen growth which is not susceptible to growth-models and easy predictions.
It is at the intersection of GROWTH and VALUE investing I call my hunting grounds. Again, I will not share my methodology, but only it’s resultant. So that’s as far as I can go in outlining what I attempt to do.
The one truth I CAN tell you is that QUALITY is as important as ALLOCATION — the companies I will provide are of the HIGHEST quality. I can not stress this enough, I am not trying to find you simple market-matching returns, but SUPERIOR / ELITE returns.
I should have included patience as a 3rd thing, but that’s not exactly “information”. My investment horizon is 5–20 years with the slack to change my mind if wrong or a rare “tornado” of an event hits my stock’s HQ. I hunt whales, blue whales and even admire Ahab’s fixation with Moby. My aim is for the stock picks I give you to have the same quality as your health — an action now which is most right for your long term benefit.
Before I write one UNQUALIFIED ticker symbol at the bottom of this intro (“qualified” => I’ll give you the idea only, but my next article will qualify it so you don’t think I’m just some nutass with no research behind it) allow me to at least mention, without proof and with as concise-detail as possible, my past stock picks which would have changed your life had I been writing stock ideas down in public (instead of giving them to my investment fund) forum (ie: you) starting 18 years ago. Feel free to read on, or simply skip it and wait for the actual DIAMONDS I’ll write about in the future. But I present this list as an example of what’s possible, using my own historical perspectives which actually occurred (whether I made the money on them is another story — one of experience and lessons-learned).
Spring 2001: AMZN, $13 per share
Amazon has the opportunity to join a legendary list of world-beating retailers like Sears, K-mart, Walmart and Costco by revolutionizing distribution using a model similar to DELL’s cash-conversion-cycle-enhanced centralized-inventory business model. Simply put, Amazon can revolutionize inventories and therefore become the biggest retailer.
That’s not something I’d write now, that’s the idea which was in my head in early 2001 after I had closely followed Michael Dell’s cash-conversion-cycle phenomena (for me a balance-sheet math to calculate on a spreadsheet and follow, but for Dell a prized advantage over HP and other computer OEMs at the time). It’s the “back-of-the-napkin” idea which inspired me to recommend buying it at the time. I love napkin ideas; I’ve found that if you can’t read the idea on a napkin chances are it’s not an elite stock pick.
mini-epilogue: we sold it at $17 before it went to $6 months later (> $2,000 in 2018)— got talked out of it and then couldn’t look at it anymore after it rapidly climbed — MISTAKE!!
Early 2001: Expedia
Not only are online airline bookings more efficient when done by the user with the aide of Expedia’s algorithms, but combined with the outstanding business of acquiring cheap hotel rooms and reselling them for a premium it’s a match made in business heaven.
EXPepilogue: A huge early winner for my fund which solidified my raw stock-picking ability & did wonders for a couple year’s worth of profits. Unfortunately this position was eventually sold after a nice profit not long after Barry Diller & Microsoft destroyed the business by essentially ejecting Rich Barton. But by this same THEME Priceline, now Booking.com (BKNG), became one of the greatest stocks in modern history. But I stopped tracking the industry-sector I thought had oodles of potential and watched in horror as one of the greatest CEOs of all time, Jeffrey Boyd, did everything I thought could be done in the online travel sector. MISTAKE!!!
2002: GOTO Search
(also known as OVER: Overture.com, acquired later by YHOO: Yahoo)
Overture invented search-term advertisement-auctions business model which is the first “two-way” advertising model and became surprisingly highly profitable. GOTO was considered nothing more than a dotcom carcass when I put my investment fund into it.
mini-Epilogue: this investment did VERY well while we owned it, but it was sold when it became apparent Google had invented a better mousetrap for both algorithmic search AND more importantly the better “mousetrap” revenue model for online advertising. Google proved I learned from at least ONE of my young-guy mistakes.
I have remained vigilant in the payments sector my entire professional career and Paypal was my 2nd-love (after Neteller which was my first real heartbreak) in the sector but not my last. Neteller & Paypal and even Digi-Cash and eGold are ALWAYS on the back of my mind, since realizing a business (such as Visa) can simply make a % of every transaction on earth. I have TWO plates spinning currently in this area, one of which is $SQ which I think is a candidate for dominating the entire payment industry, and another more unconventional idea which I’ll share in a future article shortly (as fast as I can write it, but the idea is investable now, and how!). Paypal ended well but NOT so well. I got taken out for a very nice premium, but was VERY angry that Thiel & Musk gave up on one of the world’s greatest potential business models thanks to the threats of Meg Whitman. I’ll never see those two the same again, and still think both are crazy. When Paypal was sold, my Expedia experience told me it would never come back correctly and so far this has proven right. Even tho Venmo achieved a nice popularity among millenials, it will lose to Cash App in the end and that’s already in motion and part of the reason why Visa MC and Paypal have been sandtraps which keep you from the GREEN of Square. Square later…
Fall 2004: The GOOG IPO
The most successful investment of my former fund; we obtained oodles (All-U-can-eat IPO that worked — a unicorn’s unicorn) of it at $40 per share at the very strange and very unpopular IPO in August 2004. Not only did Google try to reinvent the IPO which caused Wall Street to shun it thanks to evil i-bank industry, but Yahoo reported shoddy search results for Q2 which quelled interest in search engine business right as bankers were pretending to field investor interest. We invested on practically one word: RELEVANCE. Google improved GOTO.com’s model for search but more importantly improved how to rank advertisers in the search ad auction. But my theme went beyond search, my theory which I presented to near laughter on Google included a single page of paper with the total value of all the separate advertising markets in the world with the claim that Google’s Ad-auction widget could “take all”. It didn’t work out that way, but came within a Facebook/MySpace acquisition of actually happening. What % of overall advertising does Google own NOW 2004 hecklers and jecklers? (Eric Schmidt most likely cost Google total advertising domination as he advised them to stop acquiring/investing when they shoulda been securing a social network at all costs)
Epilogue: This became nearly a two-decade investment whose time at the forefront of my old investment firm’s portfolio exceeded my own by a full decade! The people involved in this large early investment in the GOOG almost got rich just on this idea alone. When we had north of 10% of AUM in Google at almost-IPO price average, it was considered CRAZY. The foundation of my investment style, nonetheless, was formed here watching Larry & Sergey’s simply amazing execution.
Fall 2006: AAPL
You could’ve been late on investing in Apple, several times in its history in fact, and STILL made a whopper of a return had you just wiped your memory & previous prejudices clean. Don’t think you had to invest in the late 1970s to achieve some of the best gains obtainable in the stock market. In 2006, which was even AFTER the smash-hit success of iPod, there was just such an opportunity to buy a huge dip due to a Steve Jobs stock-options-backdating scandal. What was my almost one-liner on the OTHER most successful investment of my career, one I still own today?
Invest in AAPL for the long term opportunity of the coming iPhone, the short-term opportunity of higher Mac sales due to recent introduction of Intel chips, and the fact that Steve Jobs recent options-backdating “scandal” will end up being a temporary speedbump allowing you to get a great price now.
ongoing-logue: Apple is still an index-beating stock TODAY and was also a two-decader like Google for my last employer. I’ve battled nay-sayers so many times over the past 13 years it’s hard to remember all the scandals and “end of Apple” vitriol which occurred along the way. When we invested, Bill Gates was an invincible Borg and Apple was considered in the same light as Phil Mickelson before he won his first major. Wall Street HATED them, and sometimes still do. What’s ironic is Apple will end up being the greatest company in the history of America whose parallel is only Standard Oil in terms of sheer relative size to its peers. And STILL no one really sees that coming. You can hang out in AAPL for another decade and not be worried — altho it won’t be an idea I’ll present unless very specific conditions occur in the near/medium-term.
1992->Present: LUV & RYAAY
Honestly can’t remember the prices I got in Southwest, it was my first diamond in the roughage, found in my teens, only it was more diamond than roughage at the time. Was in college (undergrad) when I invested after reading a Forbes article about their plane distribution small-airports friendly-service free-peanuts method honed by Herb. When I rode Ryanair in 1998 from France to Dublin I was equally impressed, and soon fell literally in love with hero’s-journey Michael O’Leary. Can’t remember learning much from meeting him despite having a full hour to pepper him with questions once — I think it was the only time I was star-struck. But needless to say my love for Ryanair has never wavered and at some point during the collapse from 2003 I was able to get some shares. Ryanair is proof that you can’t just go after diamonds, as everyone else on Wall Street is clever enough to recognize diamonds too even when they are quirky; instead, you need to go after diamonds in the roughage. Price timing and allocation matter.
Q1 2009: IBKR
Interactive Brokers is the best financial institution in our lifetime. Think of buying it as the equivalent of being able to buy Goldman Sachs circa the late 1800s, there’s almost no bad time to buy it if your time horizon is retirement. Only appreciating over 400% ($15 to 2018 high of $80) since picking it its not been the best of performers during the 10-year bull run (thru today about same as Dow Jones Industrial Average). Over time this will change, but it might take a long depression to prove it bc all the bad financial institutions were bailed-out in 2008/2009. Petterfy will be a RARE SURVIVOR of the next banking shakeout which will be VERY serious one (like Panic of 1857). You should remain vigilant attempting to get this company into your portfolio at the proper time and price. Should a wide open door opportunity present itself to enter IBKR, I shall hope to inform you via a post. THAT is why you might choose to follow my Twitter address John Pitts or this Medium blog.
Late 2014: SODA
SodaStream was despised after an initial hot run, but there was actually everything to like about their convenient soda-making kitchen-tool. The initial call to buy it was made at ~$20–25 per share; it was a Buffettian “razor + blade” (See Gillette and how much money it made Berkshire Hathaway in the 1980s and 90s) business model; and 3 years later after a national “fizzy” flavored soda-water craze (ongoing) Pepsi agreed and acquired it for almost $150 per share.
Spring 2015: ETSY
Etsy is a nearly perfect counter-cyclical retail play both bc Amazon could not stomp it out (they tried AFTER I recommended Etsy) & bc those creative folks who make Etsy’s wares are typically the “underemployed”. So while a recession might create smaller demand for Etsy’s products, it actually balances out bc creators have more time (unemployment or underemployment) thus can create more goods which makes goods cheaper. ETSY is built for both a strong economy (hand-made goods are always popular) and a weak one (provides at-home jobs). After a hot IPO I avoided due to too-high price vs near-term prospects, I recommended the shares as it began to break down below $20 per share. 4 years later it’s between $55 and $75 per share. It’s still a “diamond” but is it a diamond in the roughage?
Q4 2015: Oil (WTI)
You might not know it, but in January 2016 oil per barrell (WTI) was the cheapest it’s ever been in oil’s entire (short, aka 160 years) history minus the Civil War (when distribution was impossible and the market was flooded w new early oil wells after the initial Pennsylvania rush). I was a tad early recommending WTI at about $32 per barrel but continued buying to the $26 low.
epilogue: Oil hasn’t bottomed despite that amazing low “storm-of-the-bicentennial”, and my call was actually shorter term with only $49 as the safe peak. WTI has visited almost $80 since then, and I believe we will get a once-in-American-history chance in certain commodities like oil in the coming decade. I plan on writing about it in the future, when it happens, when it’s ideal to buy commodities. If that interests you, follow the blog or Twitter address. Natural Gas is also constantly riding a low, but I recommend staying away from almost ALL energy-related ideas in the coming years as we will have a massive energy shakeout which only few equities will survive. The natural gas pipeline companies are particularly at risk, steer clear.
2016: SQ & TWTR
Square was left for dead in 2016, trading for low teens and even below $10 per share bc no one believed they had anything special. But Jack Dorsey is the REAL polymath of our times, and his Twitter and Square are both remarkable companies. Square added Caviar acquisition which is the premium restaurant food delivery company (and back-end) in the industry, and it’s still growing like a weed. Square is a better Visa and Mastercard, which is where all the “hedgies” are hotelling these days. The hedgies SHOULD have been in Square, and STILL should be in Square for the foreseeable future. But SQ isn’t “in the roughage” anymore, so it requires cherry-picking a good price if you’re not already in it. Compared to value-investors love-affair with Visa & MC however, wow, Square has been a monster stock (up > 400% since 2016 vs Visa up 100%).
Twitter is a buy right now, altho I don’t consider it an “Equity Diamond in the Roughage” bc it doesn’t meet my strict criteria. But if lacking other things to own or buy, you should own $TWTR particularly if you’re a long-short equity fund. There is still TREMENDOUS upside to earnings and Twitter is still solidifying it’s importance despite the public outcry regarding it’s “hostile” nature. Don’t believe the headlines; Twitter WRITES the REAL headlines. What is Twitter? Twitter is news AT the source. There’s another company just like it that DOES meet my criteria, and that’s the one I’ve promised you in this intro.
This is actually a pretty comprehensive list of my stock picks over the last 20 years; I don’t strike often, but when I do it’s a high quality company. If you ever catch me saying something about shorting, however, as Vince Vaughn would say EARMUFFS! https://www.youtube.com/watch?v=AHK9S8EMcyE I don’t believe shorting makes sense the way the world exists in reality, and while that’s a hot take near index all-time highs and a 10 year run that’s sure to end soon (next 2 years max), I’ll point you to the ONLY thing I’ve ever learned from Jim Cramer: “There’s ALWAYS a bull market somewhere… (and it’s my job to help you find it”)”. Someday I’ll post an entire article on shorting stocks and the long list of reasons not to do it (also one of the few maxims I’d agree with Warren).
I DID promise you a stock pick at the end, and here it is in 4 succinct letters describing one of the best companies in America right now if not THE best company in America and it’s worth a purchase now or any price below $14 per share (~ $20 billion market capitalization)
SNAP, a 20% position at any price < $14.00
Unimportant Boring Epilogue to Introduction:
Now that my stock pick and “extreme” allocation size has properly scared you billionaires, a little about myself which may nor may not be helpful:
First, I like EZ-listening while reading filler-nonsense
“We’re All Connected” https://www.youtube.com/watch?v=XGK84Poeynk
I am personally, and always no matter what I’m currently doing, striving to become the greatest stock-picker of all time. This is a bold goal, but I am well along in it & believe I have a good chance. I invested in my first stock with $1,000 of saved caddie money just after the 1987 crash as a 16 year old. I was inspired by a math teacher in 7th grade to look at the stock market, that was as a 12 year old. The things which truly inspired me in stock-picking after that were “How to Read Financial Statements” by Benjamin Graham (which I MUCH preferred to his other longer works), the Phil Fisher book Common Stocks & Uncommon Profits which I much preferred to Graham & Dodd, a local community college accounting 101 teacher who gave me great confidence that my math skills could translate to business math skills, Peter Lynch’s first two books, and my favorite is still the Gorilla Game. In respect for their right to privacy I won’t mention how big an effect my family has been, but huge — they gave me every tool available to PRACTICE my craft. My investment style has taken a HUGE epiphany-governed pivot in just the last 2 years, and I want to share the fruits of what has been 10 years of studying the craft of stock-picking (investment management). I am a keen study of BUSINESS history (ask me what specifically in economics led to the Revolution & Civil War; don’t ask me about war-time battles & The King’s sexual preferences) which I incorporate more often than not. I believe computers will do much to make my profession smaller yet not really affect my methods which are VERY much based on HUMAN advantages over computers. Along the lines of computers putting my profession out of work, the investor I most admire from afar is obviously James Simons of Renn-Tech (which I’ll admit now I’ll probably never be able to beat, but go ahead and try to get your money into Medallion Fund whereas I can still tell you good places to park your money). There are others, and the theme of those others is none of them really match my own personal style and stock-picking methodology but I admire them for what they do and the creativity of their methods. A short list of those I admire but do not and cannot copy: Carl Icahn, Julian Robertson, Joel Greenblatt (I’ll never enjoy arbitrage or special situations, have at it Joel!) and finally a certain other person whom I’ll keep private but is not as well known as these other blokes. Yes I think Buffetted WAS a bit of a INVESTMENT genius, but I now put him in the same Infernal circle of hell as Joe Paterno. Most of all I believe a certain brand (the brand I hope to achieve anyway) of excellent, honest by-the-rule-of-law stock-picking is extremely valuable to mankind, so I will never agree to the “EVERYone on Wall Street is a greedy asshole” motif which is frequently on display by the mainstream media. I believe our greatest Americans are probably (in historical order) Thomas Paine, George Washington, James Madison, Thomas Edison (#1), Einstein, @jack and @ev, Evan & Bobby, and quite possibly Craig S Wright (whom America SHOULD adopt from Australia but won’t) who is in the future going to possibly change everything with his unique home-grown version of Proof-of-Work Max-Theoretical-Efficiency Node Networks which apparently (given what’s printed about him in the “funny papers”) almost nobody understands at the moment (more on this topic later article) My favorite mathematician is Irish quaternion-inventor William Rowan Hamilton whom I believe is still massively unrecognized for what the quantum physics community will discover in the future about our world. My favorite numbers are all actually letters or symbols (pi, i, e & the square root of 2 in that order), and my favorite Physicists are Planck (E = hv which contains my favorite constant), Einstein (#1, no one close), David Bohm (believe his theory will be proven to conserve locality when it is updated and verified), Bell, Aephraim Steinberg and mobile surfer-physicist Antony Garrett Lisi who is probably wrong about his general theory of everything but WAY more on the right track than everyone else in formal Physics academia. If it’s not obvious, I’m giving you this background bc I believe being a keen study of science, technology, economics & business history, the arts, and (poly)math are GROUND-ZERO for maintaining your job as a stock-picker vs Jim Simon’s robot armies, bc those armies are certainly visible to the whites of their eyes, and coming fast and they are VERY capable stock-pickers (until they aren’t → as all great historical fat profit margins collapse with time just as your body do). The computer is catching up but will NEVER exceed the broad creativity of the human brain.
Enough background on what makes me tick, read subsequent posts for stock picks which hopefully will be very infrequent (perhaps to the point of reader frustration) but peppered with related content which can frame PAST (like $SQ Square), CURRENT (Snapchat, $SNAP) , and FUTURE ($BSV Bitcoin Satoshi’s Vision) EQUITY DIAMONDS IN THE ROUGHAGE. Lastly, right about now, the majority of your assets under management which aren’t allocated should be placed on the US 10-year Treasury Bond with your ass sitting on it til you can’t take it any longer and MUST take a chance on a big muddied diamond idea. Cheers!
…and just in case you skipped to the bottom without realizing the Epilogue:
SNAP @ Price ≤ $14.00 per share