Watchlist Investing And The Neighbor’s House Analogy

During their recent episode, Taylor, Carlisle, and Adam Mead discussed Watchlist Investing And The Neighbor’s House Analogy, here’s an excerpt from the episode:

Tobias: [crosstalk] When you’re constructing your portfolios, Adam, do you take that idea of taking the big bets? Do you like that idea of narrowing down to whatever the best idea is at the time and taking a big swing at it, 44% or whatever the case may be?

Adam: I do. Let me see. I’ll pull up my portfolio for you, guys.

Jake: Only someone wrote a book on concentrated investing.

[laughter]

Adam: That would be a great addition to know. Rough numbers, 38% from position number one. 30%, almost 31% for the second position that I’m at nine, six, four, eight positions in total.

Jake: That’s pretty concentrated.

Adam: When I did my last letter to my investors, at the time it was 13. But over the last six years, I’ve only owned 14 stocks in total. So, it’s a pretty small universe. I just bought one company that I had this minimum threshold. I’m not willing to put at least 3% or something. I don’t know, there’s this idea of, “Okay, buy 1 share, buy 10 shares, you mentally become an owner.”

Tobias: Yeah.

Jake: yeah.

Adam: I’ve dabbled with that over time. I almost have this minimum threshold. It’s like, “Okay, if I’m not willing to put this much in it, just walk away,” a quasi-punch card type of approach.

Tobias: And you scratch that-

Jake: I’ve heard before–

Tobias: -itch by keeping a watchlist.

Adam: What’s that Toby?

Tobias: You scratch that itch by keeping a watchlist.

Adam: Yeah. I think it’s much more of enjoying the spectating, if you will. The fun is in owning businesses, that’s what we ultimately want to get to, is owning a really good business. Yeah, just following these companies and seeing what they’re doing, capital allocation have the forcing function for me to put something out every month. It might not be a brand-new company or a deep dive. It might be a couple of little updates on companies. But really getting to this habit of following industries, and you guys experience this is just pattern recognition. Just all these little qualitative cues that come out over time, “Okay, I’ve seen this guy over here, or this business looks like this.”

I like this approach of having a watchlist. Some people are good at looking at, “All right, let’s pull the 52-week low list and go down, boom, boom, boom.” I’d rather study my neighbor’s house. I’ve used this analogy in the past, study my neighbor’s house, find out which ones made of brick versus flammable material or whatever. And then if the house catches on fire, then I can make an offer to the guy. But to rush into a burning building that you’ve never looked at before and say, “Okay, I’m going to assess this and I have to do it quickly, right?” that’s not me. That’s not my game. So, others can do it.

Tobias: That’s a good analogy. I’m going to steal that analogy.

Adam: Yeah, go, right ahead. [Jake chuckles] No trademarks.

Tobias: JT, you had a good question there?

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