I — Owen Rask — believe every investment strategy and process should change when the facts change, but long-term wealth creation principles seldom do.
George Clason’s Richest Man In Babylon is still the world’s best finance book — it was written in 1926.
This page attempts to explain our investment philosophy, how that informs or guides our investment process, the way we think about creating wealth and building an investment portfolio and how our premium membership services can be combined to create a well-rounded investment strategy.
I was once asked, at a journalism conference, how I defined my job. I said: My job is to write the exact same thing between 50 and 100 times a year in such a way that neither my editors nor my readers will ever think I am repeating myself.
That’s because good advice rarely changes, while markets change constantly. The temptation to pander is almost irresistible. And while people need good advice, what they want is advice that sounds good. – Jason Zweig, “Saving Investors From Themselves“
Rask investment philosophy
An investment philosophy is what guides you. It’s the ‘why’.
Why you invest the way you do.
As we explain in our Value Investor Program, investment philosophy is the product of your experience and education. From my decade of research, interviewing, reading, education and experience, I believe the best approach for long term wealth creation incorporates the following fundamental principles/truths:
- Capitalism works. If companies and entrepreneurs create value for society by solving problems, shareholders supporting them must be rewarded.
- The stock market is a vehicle for transferring wealth from the impatient to the patient (see Buffett annual letters)
- Wealth creation can be summed up in two words: accumulate assets.
- Fewer investment decisions often result in better decisions, so high conviction and concentration is the best approach when you know what you are doing.
- >Diversification is very important for beginners, passive and index investors — including the tens of millions of Aussies & Kiwis who have better things to do than manage an investment portfolio. Consider ETFs.
- That said, for professionals or investors who have a decade of experience, the benefits of extra diversification will rapidly diminish after 10 uncorrelated positions (see Evans & Archer)
- Less than 5% of companies on the stock market are responsible for all of the stock market’s wealth creation over bonds (see Professor Bessembinder).
- There are three commonly accepted investing ‘edges’: behaviour, analytical ability and information. Investors would be wise to focus first and foremost on their behaviour — it’s the easiest way to get better outcomes.
- Most people shouldn’t invest in individual shares because they lack the time, inclination and/or curiosity. Each of which is required to invest well over time.
- Investors do not need to choose between ‘active’ or ‘passive’ — everyone should use both in a portfolio (see below).
With these 10 principles considered, we believe it is possible for private stock investors to outperform the stock market over time — but given how hard it is, everyone should use passive index funds in the Core of his or her portfolio.
In our experience, the investors who produce exceptional returns tend to have high levels of intellectual humility and curiosity, always have a Plan B, they minimise taxes and fees and only ever invest with optimism and a view for the long-term.
The Core & Satellite approach
If investment philosophy is the ‘why’, investment process is the ‘how’.
How you express your investment philosophy and make money from investing.
I’ve met many investors, some of them far smarter than me, who do poorly at investing. Why? Most of them overcomplicate it.
As a result, we believe every investor will benefit immensely from following a simple and effective framework.
At Rask, we tell our Rask Core members to consider using a ‘Core’ and ‘Satellite’ investment process for long-term wealth creation because it is simple, intuitive, limits risk, reduces envy and, of course, provides lots of upside.
We have designed our premium membership service, Rask Core , to reflect this framework for investing, not just in shares/equities but across other asset classes.
It starts with the Core
The ‘Core’ of a portfolio is the centre of every investor’s universe. It’s where most investors should begin (and end) their investment journey.
We believe the Core of a portfolio should be reserved for investments that are:
- Proven (i.e. based on objective empirical evidence over decades, not weeks or months);
- Low-cost (for maximum compounding, since fees are a big reason most investors do poorly);
- Low turnover (for tax reasons, every time you buy or sell there will be a tax bill to pay — which significantly drags on your investing returns), and
- Easy to understand (for the sleep-at-night factor, most people don’t want to read the latest news headline and question everything).
In practice, index fund ETFs, property and some managed funds would go in the Core of a portfolio.
If I had $10,000 or $100,000 to invest today, I would put 90% of my money in Core positions (and I wouldn’t invest it all at once — I’d start with the smallest amounts and spread it out over months or years).
The Satellite, sometimes called the ‘Tactical’, part of a portfolio is the smaller part (or parts) that investors can reserve for their ‘active’ investing and higher risk positions.
We believe individual shares can produce great returns for focused investors. That said, a long-term time horizon (10-20+ years) and a high conviction approach, driven by deep research and valuation work, are essential for success.
In my opinion, if the only reason you buy individual shares is to get wealthy over decades — I’d be willing to bet you’ll be better off in index funds. In my experience, investing in individual stocks should only be considered by investors with some investing experience (e.g. 2-3 years of experience) and because you want to learn how and why some companies work.
How we identify stocks to buy
To identify individual Satellite positions (e.g. shares of companies), our approach is as follows:
- The companies must have a strong competitive advantage or ‘moat’
- Management must be aligned, talented, transparent and consider themselves as ‘owner-operators‘ (founders and families are great)
- The businesses must be within our team’s circle of competence (i.e. what we can understand). Given our expertise lies in the technology, finance, software and industrial sectors, we almost never venture outside of these industries. Fortunately for us, the companies in these industries can be extremely profitable.
- The business must operate in a structurally growing and increasingly important sector, market or geography. The total addressable market (TAM) is very important when we are aiming to invest for 5-10 years or more.
- The shares/business must be reasonably valued. We will use the standard valuation modelling tools, such as discounted cash flow (DCF) analysis, internal rate of return (IRR), comparables and ratios, and sum-of-the-parts.
Our Rask Core service was designed to offer investment research on ETFs and shares, with a simple investment strategy for everyone — from beginner to multi-decade investors.
If you are interested in going deeper or receiving our investment research, consider joining me inside Rask Core , or take advantage of some of the resources further down the page.
Founder, Rask Australia
Lead Investment Adviser
If you would prefer to dig deeper into our philosophy and process, the following resources should help:
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