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Mavericks: Beating The Market by 40%!
On my Scorecard, I briefly outlined my Investing in Mavericks strategy:
“This investing approach tries to mimic "Venture Capital" investing, but in the Public Markets.
In short:
We are looking for small companies poised to become the greatest companies of our time. Think, Amazon or Netflix in the early 2000s. Companies that, if they succeed, have the potential to 10X in 10 years or less.
This approach really comes down to envisioning what the world MAY be like in the future, and investing in companies who can make that proposition a reality. We want these companies to be run by visionary leaders, and we will aim to own these stocks for very, very long periods of time, perhaps forever.
I believe this approach is very difficult, and will result in many failed individual investments (just like Venture Capitalists experience) but I also believe this investing approach can be quite lucrative, if executed well and patiently. ”
Well, it’s been a little over a year since the first purchase mentioned on the Scorecard, and the results to-date have been excellent. Of course, it’s been only a year, so we can’t get too ahead of ourselves, but I am happy with the results so far:
Overall Results
Performance: +33.01%
Corresponding S&P500 Market Performance: -7.66%
Outperformance: +40.67%
Below are the individual purchases, which can also be found on the Scorecard. The majority of the stocks I bought (yes, with real money) were outlined in my “Investing in Mavericks” article here on November 27 2019.
The Magic of the Power Law
On December 4 2019, I wrote “Investing in Mavericks: What Returns Need To Be?”.
There, I suggested that if we are to be successful with this strategy, we need to construct a portfolio that will help us generate a venture capital-like return profile. That is, we need:
To take enough risk in our holdings and
To hold on to our investments long enough, such that we can get outsized returns from a handful of them.
I specifically wrote:
“If we are successful, winners (which should return multiples of their original investment) should cover the losses from all the Distractions, and then some...”
And that, if the investments demonstrate Power Law dynamics
The best investment ends up being worth about as much as all the rest of the investments combined.
We are starting to see exactly these characteristics emerge.
Teladoc has been my best publicly disclosed investment so far. It has already doubled and getting close to a triple. The profit from Teladoc has not only made up for all the losses from the other investments combined, it has also allowed us to beat the market by 40%!
Notice how, even if we had bought Teladoc only once (row 3 below), we would still be in the green. We would still be beating the market by almost 14%. This goes to show you the magic of the power law.
Once again, it’s only been a year, but early results of this investing approach seem promising, despite the fact that we’re in the midst of a terrible bear market.
Next time, I plan to talk about some of the lessons learned during this year, and some commentary on our holdings.
Stay Tuned!