Investment Philosophy, Rule No. 1: Invest in Things That Matter

Motley Fool analyst Jason Moser chats with Rick Engdahl in a side-of-desk interview about developing a personal investment philosophy, and he shares his own four-point system for deciding whether a particular stock is right for his portfolio.

In this video segment we find out that Jason's first criterion for an investment is that the company or sector must be of personal interest to him. Do some reading! If you're going to invest in a company, you need to care about the industry, have a basic understanding of it, and enjoy following its development.

A full transcript follows the video.

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Rick Engdahl: Let's dig into each one of these a little bit and talk about it.

The first one here, enjoying the investment. Does this mean it's the industry, the company? How has that led you to any investments that you might not have seen otherwise, or how has it maybe deterred you from going in a direction that you might have?

Jason Moser: I don't know that I necessarily would have cared all that much, for example, for something like a miner or something in relation to mining or industrial activity like that, necessarily. It's not the sexiest story in the world. It's not the most exciting company in the world to follow.

What it did make me realize was that I didn't know a lot about it, and that prompted me to at least want to learn more to see if it was something that I was even interested in at all.

The more I looked into these kinds of miners and these suppliers for miners and things like that, was that there was this huge world out there that was very dependent on a lot of these companies and what they were building in order to help these countries grow their infrastructures and wha-tnot.

Joy Global  (NYSE: JOY  ) I think is a great example. It's a company that I own shares of, personally. Joy Global, the primary product is they make mining equipment for coal mining. There's a good example of probably one of those lines -- maybe people don't really care for coal all that much, but that's what you have to figure out on your own.

For me, all of a sudden I realized, looking past just the United States, for example, all of these emerging economies -- these non-OECD countries like China and India that are all very dependent on coal for their infrastructure, for building out and progress -- I learned more about how Joy Global makes their equipment for these different types of miners, and all of the factors that go into determining the supply versus the demand, the pricing of coal, and how that affects Joy Global's business.

I learned a lot about cyclical companies -- companies that work in cycles as opposed to maybe a consistent straight line up.

Rick: That's interesting. When you first started talking about enjoying it, I'm thinking, "OK, what are the companies I enjoy? I like coffee; I'm going to go check out Starbucks (NASDAQ: SBUX  ) . I like superheroes; I'm going to check out Mattel -- or I guess that's Disney  (NYSE: DIS  ) now.

But you're saying that you've also used this as a way to discover things. You don't know anything about mining, you don't feel like it's an area that you like, but you're still willing to go there and check it out. Then you might find, "Oh, actually, I am interested in this. This is something that I enjoy."

Jason: Yeah, and to go to the other side of that coin, things that I enjoy -- Starbucks or something like Walt Disney, which is pretty much a no-brainer where I'm concerned, because I use Starbucks products every day, and Disney plays just a tremendous role in my life, with our two daughters.

Those are things that I really enjoy following, because I just keep up with them on a day-to-day basis, so I think there's that low-hanging fruit, for example, that you can find; those companies and those ideas that are very enjoyable and you know immediately you're going to like it because it's something that you do every day.

But yeah, to your point there, I think it's also a great way to discover whether you actually might enjoy something else or not. The only way to know is to look at it, to read about it, to learn a little about it.

Maybe you read about something for an hour and you decide, "Man, this is as dry as it gets and I've got no interest in it whatsoever." But then you know, so you can then say, "Well, those are companies that I'm not really interested in and I don't want to follow."

But the other opportunity there is you find something that you're really interested in, and all of a sudden you've expanded your circle of competence, so to speak. We talk about investing in things that you get, that you understand, that you enjoy. That's the whole point of this.

Don't invest in things that don't make sense or you don't understand.

Biotechnology, I think, is a great example of something that's a bit outside of my circle of competence -- these biopharmaceutical companies that come up with all these new drugs and tests and trials and things. I think it's fascinating what medical technology offers us. I just don't know a lot about it.

I don't have any experience, any training in it, and I've discovered that I don't really care to learn all that much about it, either. It's interesting to me, to a degree, but not to where I feel like I need to maintain a level of proficiency so I can invest in it, so I tend to just avoid them. I don't have any of them in my portfolio, and I just learned that I didn't really care to follow it.

Rick: Plenty of other stocks to choose from.

Jason: Exactly.

Rick: Don't need to own them all.

Great. Using "enjoying it" as a mantra, not only for finding those easy companies that you already like, but also as a way of discovering what you may like in the future.

Jason: Yeah.

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  • Report this Comment On August 19, 2013, at 1:00 AM, TurbulentTime wrote:

    "Rule No. 1, Do not lose money."

    "Rule No. 2, Do not forget Rule No. 1."

    "Buy when others are fearful."

    "I am fearful when others are greedy (or overly bullish)."

  • Report this Comment On August 19, 2013, at 1:02 AM, TurbulentTime wrote:

    When others say that they have lost faith in ownership of company stocks, and that most pledge they will never buy stocks again, that is the best time to buy stocks.

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