All it Takes is One

Ian Cassel Blog, Educational Leave a Comment

It is incredibly humbling, inspiring, and a bit scary when you realize that one great investment can make your year, decade, and even career.

In 1980, Stewart Horejsi was having doubts that his business would survive. His company, Brown Welding Supply LLC, had been in business for 50 years, but they were slowly losing market share to the competition.

Horejsi heard about Berkshire Hathaway in John Train’s “The Money Masters”. He was frustrated with the growth prospects for his business, so he took some cash and bought 40 shares of Berkshire Hathaway at $265. Two weeks later he bought 60 shares at $295. A month later he bought 200 shares at $330 per share.

He went to the annual meetings when there were less than a dozen people in attendance. He actually made his friends go too because he was worried the company would stop having them because attendance was so low.

‘I kept running the [family] business, but I just kept buying Berkshire. I can’t really believe I put so much into one issue, though,’ he said.

His 4,300 Class A Shares are now worth $1.4 billion.

In 1999, legendary fund manager Bill Miller ran into some Amazon executives at the Santa Fe Institute. The institute is a think tank, and Miller sat on its board. He spoke to the executives for hours. Leaving the meeting he said, “[Amazon] has incredible economies of scale, which will eventually become apparent.”

He started buying Amazon in September 1999 when it was $80 per share. Then, after the dot-com bubble crashed the stock plummeted. Miller didn’t sell. He bought more at $20, $10, and $7. It was 15% of his fund. Everyone said he was out of his mind.

In early 2002, he made a bold prediction about Amazon. “If we’re right,” he declared, “we think we’ll make 50 times our money over ten years.”

No one was listening. We know what happens next. Miller still holds shares that he purchased in 2001.

In a recent presentation, Investing is Hard, I shared with you the story of Masayoshi Son, the founder of Softbank. Masayoshi Son is said to have made The Most Successful Investment in the History of Mankind. His $20 million investment in Alibaba in 1999 is now worth $120 billion. A 6500x return.

Perhaps what is even more important is this one investment bailed him out of many failed investments. In fact, the Alibaba position today is worth more than the entire market cap of Softbank.

I give you these investing examples not to endorse going all in on one company.

For every story like Stewart Horejsi there are thousands of other stories where people lost most of their money going all in on one company.

For every story like Bill Miller averaging down and down and down into a contrarian position, there are thousands of others that averaged down into profitless companies that lost everything.

For every story like Masayoshi Son who made over 100 investments during the dot-com bubble, and a couple of those investments saved him from complete disaster, there are thousands of others that didn’t get so lucky.

The fascinating thing is some of the best investment returns will come from positions where you had the least conviction.

Mr. Market has a maddening sense of humor. Time and time again he will make the positions you have the least conviction in perform the best and the positions you have the most conviction in perform the worst. It’s the markets way of forcing you to respect the game.

The beauty of microcap investing is these businesses are small. If management executes there is a lot of room to run to the upside. Because they are small you’ll have plenty of time to own more of the management teams that are executing.

You don’t need to go all in on one to generate alpha. A basket of 6-10-15 positions will give you ample shot to get the big one. All it takes is one.

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