Pat Dorsey Pillars Of Investing (Issue #64)
Pat Dorsey is a truly unique investor. He actively tries to...
Pat Dorsey is a truly unique investor. He actively tries to hold companies that are not your standard run-of-the-mill FAANG/MANGA or other big fund stocks (in spite of running an ~$829m fund). Further, Dorsey holds a few stocks with high conviction percentages. Let’s jump into his Pillars of investing:
Understand It
One aspect of investing that should be the first litmus test for any investment before it is made is whether or not you understand the business and as Peter Lynch would say be able to explain the business to an 8-year-old. If this is not the case this is not the investment for you because you won’t know when the thesis fundamentally changes (when to sell).
Competitive Advantages
Moats make or break businesses. If there is not a definite way a company is better or protected from its competitors then it is not a valuable investment or strong business. Businesses with competitive advantages can outlast the competition in both easy and difficult times.
Fortress Balance Sheet
Dorsey is not one to comprise fundamentals. He looks for stable cash flow, growth opportunities, and pricing power. Many great investors have focused on fundamentals long before the recent economic changes making them more crucial than ever, Dorsey is no exception.
Reasonable Price
As Charlie Munger has said, “No matter how wonderful it is, it’s not worth an infinite price.” Dorsey values a margin of safety in the form of relatively cheap valuation multiples.
Long-Term
Investing is not a day, month, or multi-month endeavor it is a pursuit with multi-year holding periods. This long-term mindset going into an investment changes the criteria you look for and raises the quality standard you want as an investor.
Limited Diversification/High Concentration
Finally, Dorsey only holds 10 stocks in his ~$829m fund Dorsey Asset Management. This means each investment is carefully selected and that while there is more risk with less diversification there is also more reward on the upside.
These Pillars sound remarkably familiar. While the Pillars and Profits Pillars were not copied from Dorsey I agree with his philosophy of investing on many levels and much more so than many other professional investors.
Watchlist Update:
Portfolio Update:
Access the full spreadsheets and linked deep dives here.
Until This Afternoon,
Soren