Tim Beyers manages his family's portfolio and writes about stocks at MotleyFool.com. For nearly 10 years now, he has published his stock picks on TipRanks.com. This website recently ranked him ninth-best out of 6,202 financial bloggers, and reports that his average return in the year after recommending a stock is 18.5 per cent.
The Globe and Mail asked Mr. Beyers to shed some light on how he is outperforming his peers.
What's your investment approach?
I look for companies whose advantages aren't well understood. Let's take Salesforce.com, for example.
When I bought in 2011, there were a lot of investors and short sellers who doubted the company could compete. Yet, a growing community of developers were using its tools to write code and apps in the cloud-computing space.
Salesforce.com was being propelled by the same dynamic that once propelled Microsoft – a move from providing products to providing a platform whose value grew with the number of apps designed for it.
But wasn't the valuation extremely high?
Triple-digit price-to-earnings ratios aren't necessarily doomsday indicators. A lot depends on growth, market positioning and the underlying strength of the business. If you look back at companies that had sky-high valuations, not all were bad investments. Many had big gains for extended periods.
Can you give us a brief history of your investing experience and lessons learned?
My first stock pick, in 1999, was my worst: I bought Amazon.com after Jeff Bezos appeared on the cover of Time magazine. Then I sold at a 70-per-cent loss during the dot-com crash of 2001. Talk about buying on hype and selling too soon.
I had a 20-bagger [up twentyfold] in Sun Microsystems' stock, which I acquired as a company employee during the dot-com era. I should have taken a closer look at what it was that I was actually holding, and checked the valuation. Alas, I held on and ended up with just a 31-per-cent gain.
In both cases, my research and analysis had been cursory. Now, I no longer make investing decisions without a lot of due diligence. Once I decide to buy, I wait. And do another round of analysis to make sure I really mean to buy.
If my level of conviction is high, I will go for a big position, about 7 to 10 per cent of the portfolio. If less certain, I'll stay under 2 per cent.
Aren't such big positions risky?
… If I have to commit 10 per cent of the portfolio – yeah, I'll do my homework.
What are your top positions now?
The top seven holdings, in order of size, are: cash, Apple, Netflix, Alphabet, Disney, Chipotle and Taiwan Semiconductor. Most have grown significantly over time, and I reinvest the dividends.
What advice do you have for beginning investors?
Start with Peter Lynch's book, One Up on Wall Street, and then look for businesses you'd feel comfortable following. Learn the basic financials of each. Read the earnings releases every quarter and digest what's driving the stock.
If you get to know the business, you might arrive at a good idea as to whether management can give analysts and customers what they're looking for.
Then hold for the long term to earn ample rewards.
This interview has been edited and condensed.
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