From Building Income to Embracing New Philosophies
From Building Income to Embracing New Philosophies
My journey in personal investing, including a significant paradigm shift and pilgrimage to the Woodstock of capitalism
Guest Writer Post by Pavel (P K)
Summary:
In this Guest Writer Edition, Pavel, a QVI premium subscriber, shares an inspiring essay about his investment journey.
How he and his wife’s disciplined financial habits led to paying off their mortgage in just 13 years and a debt-free lifestyle.
Pavel writes that his greatest investing accomplishment lies in his income stream’s breathtaking 42% compounded annual growth rate.
How a best-selling book and the famous investors it profiles influenced a significant shift in his investing philosophy.
Pavel recreates his recent pilgrimage to Omaha, Nebraska, to attend the notorious annual shareholders meeting of Warren Buffett’s Berkshire Hathaway empire.
Contributing Editor’s Note: Pavel, a Quality Value Investing (QVI) premium subscriber, shared his investing journey with me in an email. Profoundly inspired by the read, I asked him to resubmit it as an essay for me to share with QVI’s readers.
My investment journey commenced in 2009, during the depths of the Great Recession. It was a period marked by economic uncertainty and financial turbulence. While I didn’t have significant disposable income then, I adhered to a philosophy of living below my means.
Despite the challenges, I remained determined to invest, even if it meant allocating small amounts each month. This commitment to consistency and financial discipline laid the foundation for my future growth as an investor, teaching me the importance of resilience and the power of incremental progress.
An Investing Journey in Personal Investing
My primary investing goal for years revolved around building a portfolio to sustain my family’s living expenses.
With each dividend payment, I gradually recuperated a portion of my initial investment, minimizing the risk of permanent capital loss. Thanks to our disciplined financial habits — my wonderful wife is a more incredible saver than I am — we could sleep soundly at night by paying off our mortgage in just 13 years and maintaining a debt-free lifestyle.
Our robust emergency savings, solar energy system, and small capital allocation to physical precious metals provided additional peace of mind. As a result, my investing journey has evolved significantly, with our children’s future secured and a comfortable retirement reasonably distant on the horizon.
Building a Diversified Portfolio
Being a resident of Canada, my investment portfolio comprises shares of both Canadian and American companies, including some American Depositary Receipts (ADRs).
Since 2012, I have diligently tracked my buys and sells, surpassing the Toronto Stock Exchange (TSX) returns while sometimes underperforming the S&P 500. However, my greatest accomplishment lies in the impressive growth of my income stream, which has expanded at an astonishing 42% compounded annual growth rate (CAGR).
It is important to note that chasing high yields has never been my strategy. Instead, I have focused on acquiring shares of blue-chip companies at reasonable prices, taking advantage of occasional market downturns.
Since 2017, I have incorporated options trading into my investment approach to boost my portfolio’s yield.
Employing low-risk strategies such as covered calls, cash-covered puts, and occasional credit spreads, I have increased my income while remaining cautious not to succumb to greed. While many consider options trading inherently risky, my experience with these strategies has proven fruitful, enhancing my overall returns.
A Paradigm Shift and New Investment Philosophy
In the early spring of 2022, my investment philosophy underwent a significant shift after reading Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life by William Green (New York: Scribner, 2021).
Green’s book had a profound impact on my thinking. I discovered the wisdom of Terry Smith, Tom Gayner, and Tom Russo, among many other legendary investors. These renowned professional investors have become my favorite role models, offering unique perspectives and demonstrating exceptional investment prowess.
Smith’s focus on high-quality businesses and his long-term approach resonate deeply with me. Gayner’s ability to navigate complex markets with prudence and integrity has left an indelible mark on my investment philosophy. Additionally, Russo’s emphasis on the durable competitive advantages of consumer brands has broadened my understanding of the public markets.
With this newfound inspiration and understanding, I seek to acquire shares in companies with exceptional cash flow, substantial profit margins, and high returns on invested capital (ROIC). Recognizing that these vital business attributes often reveal a company’s ability to generate sustainable wealth and deliver value to shareholders, I prioritize these fundamental aspects in my investment decisions.
By carefully analyzing financial statements and evaluating a company’s competitive advantages or economic moat, I strive to identify investments that align with these criteria. And if a specific company doesn’t pay a dividend, I can still earn incremental income by writing far-out-of-the-money covered calls.
An Unforgettable Journey to Omaha
One of the highlights of my investing journey was my recent trip to Omaha, famous as the Mecca of value investing or the Woodstock of capitalism. I attended the annual Berkshire Hathaway (NYSE: BRK.B) shareholders meeting in early May, joining thousands of enthusiastic investors eager to hear the collective wisdom of Warren Buffett and Charlie Munger, chairman and co-chairman of the company.
While the meeting’s agenda was not the most memorable aspect, connecting with like-minded individuals and celebrated investors made the experience truly rewarding. I made new friends and attended events featuring investment fund managers, podcast hosts, and prominent authors such as William Green and Gautam Baid. In addition, the Markel Group’s (NYSE: MKL) annual brunch, where I had the privilege of listening to CEO and investor Tom Gayner, was an absolute delight.
The trip also allowed me to explore the beautiful Omaha Botanical Garden, providing a serene respite from investment-centric activities.
A Continuing Commitment to Quality-Driven Investing
I am grateful for my investing transformation and thank David J. Waldron, the founder and contributing editor of Quality Value Investing, for his role in my journey. His profound influence and guidance from afar have played a pivotal role in shaping my investment mindset and deepening an appreciation for valuing companies.
The insights and resources provided by David have been instrumental in my understanding of the principles of quality-driven value investing, enabling me to make more informed decisions. I am genuinely grateful for his contribution to my growth as an investor.
By reflecting on my investing journey, my aspiration to become a great investor intensifies. I feel a deep obligation to earn the honor and worthiness of standing among the legends of investing.
With the foundation laid and my productive years ahead, I am committed to refining my investment strategies, exploring new opportunities, and staying informed to ensure a secure and prosperous future.
Contributing editor’s reply: Pavel, I am honored and humbled by your kindness. Most importantly, thank you for sharing your incredible journey as an individual investor and providing exceptional investing experiences and insights for QVI’s readers. With warmest regards, David.
About QVI’s Guest Writer
Pavel lives in Canada with his wife and three children.
Disclosures: Pavel and David each have beneficial long positions through direct ownership of BRK.B common shares, and Pavel is long MKL shares, in their respective family portfolios.
Additional disclosures: Quality Value Investing by David J. Waldron’s guest editions, course modules, newsletter posts, research reports, and model portfolios are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in their own research or due diligence and consider (as appropriate) consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.
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Inspiring write up Pavel, thank you for sharing!
Pavel, your story is inspiring. I love how it emphasizes the importance of setting clear goals and taking greater responsibility for oneself.