“Small wins are a steady application of a small advantage.”

When I attended college, I worked with a basketball program that had quite a few fabulous players. The head coach was a fiery little Irishman, and his assistants were personable who could sell ice to Eskimos. The charismatic nature of the leader didn’t necessarily apply to his coaching skills. His overall approach was to win, period. I know, very specific and detailed goal setting. As you learn about other approaches to managerial excellence, you start to recognize best practices, and shall we say, those that are lacking, or, ahem, need improvement. Our team wound up doing fairly well with a few major upsets of nationally ranked teams. However, if you asked each of the fabulous players to this day, did we overachieve or underachieve, well, you can figure out the answer. On that note, let’s turn towards how this might apply to investing?

Small Steps

A major part of investment is patience. Some have called it the fine art of sitting on your derriere. It means that for a vast majority of your time as an investor, not much is taking place in terms of news. However, that does not mean things aren’t taking place within your companies. Every company is working to improve operationally, expand into a new market, restructure some division, or is involved with a financing transaction in some way. You don’t know any of these things until they are made public or the company talks about them.

In evaluating companies, if you find a situation where a management team is just focused on getting small wins, maybe one good thing a year, you may have something very special on your hands. If the company has an existing advantage and works on extending it slowly, gradually, just a little bit each year, over time, it makes a huge difference in operational excellence. In combination with a few well thought out strategic acquisitions, and it becomes quite significant.

Just consider, when Steve Jobs announced the iPhone, analysts laughed and the investment community could have cared less. Most efforts that are successful do not begin with any congratulations. If you look at Amazon’s Prime origination, or its cloud and advertising businesses, very few investors could have imagined they would have turned into multi-billion dollar businesses. Now, it is the rare company which has the intellectual capital to build such a massive enterprise (especially in a short time frame), which is what makes Apple and Amazon unique.

However, you can be a very successful investor and do quite well just by finding organizations that slowly and methodically extend their advantage and build their companies using a systematic, day by day approach. The vast majority of these entities are small or medium sized businesses, think sub one billion dollars in sales. Obviously, there is plenty to choose from, and you only need a few really good ones to make a vast difference in the wealth you build. It takes discernment, time, and plenty of patience, but as my dad used to day, by the inch its a cinch, by the mile, it will take a while.

Tesla

In the market’s this week, the biggest story of the week seems to be overshadowing everything else on a daily basis, that being the joy that is Tesla. Every day it engages in one hundred dollar plus point swings, the vast majority on the upside. Young investors are captivated with it, and so far, it has worked in a big way, especially if you have owned it for a few years. 

In other news, the economy posted a big jobs beat in January, adding 225,000 jobs (versus expectations of 158k). On the earnings front, high profile stars like Disney, Google, Qualcomm, Merck, Twilio, and plenty of others produced generally favorable numbers. Most global entities are commenting on the Corona virus and projecting it’s specific impact for their organization. On that front, the biggest area of concern is in the supply chain. Global companies in nearly every industry have integrated supply networks and are going to be affected, some more heavily than others. So, it is probably a good idea to dampen down your expectations of global growth and market performance for the next year.