I'm not trying to reinvent the wheel. I have a fairly simple way of looking at investing and it has worked for me up to this point pretty darn well. I am not a value investor or a growth investor. I am an investor and I'm looking to make money. Awhile back I actually ran a real-money portfolio for The Fool where I picked my ideas and published my research for all to see. You can click here to see my old homepage before I closed it down.
Throughout this entire time I followed the philosophy I laid out at the very beginning, which was based on four key points. This is how I invest:
- I want to buy something I understand and enjoy following.
- I want management that I trust and can believe will do the right thing.
- I want a catalyst: a short-term event or a long-term trend that will create value.
- I want this all at a fair price.
All too often I see folks investing in things that they don't understand and in which they don't have any interest: a deadly combination when it comes to your portfolio. This is something I learned early on from Peter Lynch and Warren Buffett: Buy what you know and never be afraid to throw something in the "too hard" pile. There's a whole world of opportunities out there, and you don't need to swing at every pitch. This is why my young daughters own shares of Starbucks (NASDAQ:SBUX). No, they probably aren't aware that management has a target of 10% or greater revenue growth on a sustainable annual basis. But they don't necessarily need to, do they? It's a phenomenal brand that they see everywhere, and they like knowing that they are part-owners of a business that plays a part in our family's everyday life.
Don't you trust me?
When you own shares in a company, you become a part-owner of a business and you need to be able to trust the guys and girls running the show. That's a big reason that I own shares in LinkedIn (NYSE:LNKD). Between founder Reid Hoffman and CEO Jeff Weiner and the team they've assembled, I trust what they're doing to keep this business going in the right direction. Take their priorities in growing the business, for example: talent, technology, product, and monetization. Investors should take note of where monetization falls here. Management knows that monetization only happens if the other three priorities work first. In other words, the first three priorities help guide the fourth, not the other way around.
The trend is your friend
Perhaps one of the most compelling long-term trends today is the move to e-commerce, and this is Amazon.com's (NASDAQ:AMZN) bread and butter. Think about this: Over the last five years Amazon has grown sales at a compound annual rate of 27% and its trailing-12-months' sales clock in at $64 billion. And while e-commerce is in fact growing, it still only makes up approximately 5.5% of total U.S. retail sales. Translation: Amazon.com is at the forefront of a long-term trend of epic proportions. No wonder it broke the $300 barrier yesterday.
Price always matters
We've been talking a lot over the past week about Noodles & Company's (NASDAQ:NDLS) IPO and a stock price that seems to defy the law of gravity. According to Noodles' S-1 IPO prospectus, management sees a market opportunity of close to 2,500 restaurants over the coming 15 to 20 years, representing a significant potential growth opportunity from its approximately 340 stores today. It sounds compelling, but before investors jump in with both feet, it's also worth understanding a relative valuation of the stock. In 2012 Noodles generated about $16 million in operating income, which means that based on its market cap of $1.2 billion, it's selling at around 75 times operating income. For comparison, Panera Bread (NASDAQ:PNRA) trades today at around 19 times operating income. Of course, Panera is a bigger company and has more restaurants, but Noodles' valuation today sure looks a bit overly optimistic in my eyes, which is why I think investors should consider staying on the sidelines for now.
The Foolish bottom line
Don't get me wrong; I'm not trying to tell you this is the only way to invest. It ain't my way or the highway. But I am telling you that investing can be as difficult or as easy as you want it to be. This is how I invest. It has worked well for me through the years and my bet is it can work well for you too. Any which way you cut it, you should have a investing philosophy. After all, we Fools are lifetime investors, and a sound investing philosophy will most certainly help you find your way.
Jason Moser owns shares of Amazon.com, LinkedIn, Starbucks, and Panera Bread. The Motley Fool recommends and owns shares of Amazon.com, LinkedIn, Panera Bread, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.