“Experience is what you get when you didn’t get what you wanted.”
– Randy Pausch

After 17 years in the investing business, I still have so much to learn. I continue to learn from others’ ideas and mistakes as well as from my own ideas and mistakes. Here are some things that I’ve learned so far:

1. Paying up for growth works. I used to only buy companies that were trading at low valuations. Now, I know that I shouldn’t be afraid to buy companies that generate strong returns on capital and have long and wide runways of growth. Buffett’s preaching on this took a while to break through to me: “It is far better to buy a wonderful company at a reasonable price then a fair company at a wonderful price.” Ten years ago, I never would have bought a company like Visa. Now, I spend my days searching for another investment as great as Visa.

2. There are great companies out there that don’t pay dividends. We’ve had tremendous success owning companies that pay and raise their dividends every year. In our opinion, there can be no greater signal of confidence to investors than a company raising its dividend. However, many growing companies don’t and shouldn’t pay a dividend. If I stuck to only dividend payers, I would never have purchased Apple (Yes, we bought it before it started paying a dividend), Google, Berkshire Hathaway and Priceline. These are some examples of companies that may never pay dividends but are run by smart operators and are good stewards of capital allocation.

3. Negative sentiments can make you look really dumb in the short-term. The saying that the market is a beauty contest in the short-term is true. When a high profile investor announces he is shorting the stock you’ve invested in, or when a company starts to report weaker earnings, the stock can get caught in a negative sentiment feedback loop. The stock starts to go down, and investors get worried about the price drop, pushing the price down even further and your once favoured holding goes right into the outhouse. Negative sentiments can test the resolve of even the most patient investor. I’ve learned that when negative sentiments get the upper hand, I continue to trust my research and buy more, or I simply sell and move on to another idea.

4. Don’t get wound up on themes (both positive and negative) that rarely come to pass. This can lead me to buy a stock too early or sell a great investment too early. For example, we sold our shares in Restaurant Brands much too early. We held Tim Hortons for many years, and we were upset to see the stock get acquired by Burger King (now called Restaurant Brands). After analyzing Burger King, we realized that the newly combined company had a great deal of debt. So we got wound up in the fact that our investment in Tim Hortons, a company that had next to no debt, would now become a company with lots of debt. What we didn’t understand at the time, is that the new company would generate so much free cash flow that it would be able to reduce its outstanding debt very quickly. This was a costly lesson, as the stock has doubled since we sold it three years ago.

There is still so much to learn and I can’t wait to see what the next 17 years will bring. In the meantime, I will continue looking for more wonderful investments and investment ideas.


Barry Schwartz

March 21, 2017