Looking back on Covid and seeing the optimism that comes with the vaccines, I’m struck by something.
Had I bought more of my favourite companies on the ASX on 27 March 2020, I would have doubled my money. While receiving a dividend yield of around 5% p.a.
Doubled my money in less than a year. On a company based on real estate with low debt and a very discernible margin of safety.
This was a high-conviction opportunity. All our research and analysis showed that the returns could be strong. Assets were secure. And for much of last year, the business was undervalued.
The trouble with acting on such decisions is that fear limits them. If you’re not as wealthy or financially independent as you wish to be, I’d bet you that’s down to the limiting factor of fear.
There’s a simple way to conquer fear. And I was reminded of it the other week.
A friend found herself in a dispute that was going nowhere. The other party was bullying. She feared the worst. Then she reviewed the options, took advice, weighed the matter with caution. And dropped the atomic bomb of a legal notice.
It was not an easy thing to do. But it led to the best outcome and the matter was resolved very fast. Actually, to the satisfaction of both parties.
But these matters were trivial compared to some others.
At the time, I was reading Countdown 1945: The Extraordinary Story of the Atomic Bomb and the 116 Days That Changed the World.
Countdown 1945 and President Harry Truman. Source: Simon & Schuster
Chris Wallace’s account to the decisions that led to the bomb is riveting.
Harry Truman suddenly found himself president after the death of Roosevelt in 1945. By August, he was faced with the most strategic and catastrophic decision of the 20th century: To drop two of the atomic bombs on Japan that scientists at the Los Alamos National Laboratory had just developed.
In Truman’s own words, ‘The most terrible bomb in the history of the world’. With the power to annihilate all human life.
There were many considerations. Would the bombs work? Would they force Japanese surrender? How would they change the reputation of America as an honourable actor on the world stage? Would they really end up saving more lives than they destroyed?
It was a calculated risk. But one that ultimately did work: Bringing about peace and cementing America’s reputation as a superpower.
And so this memo destroyed the city of Hiroshima killing around 150,000 people. A city I visited just before Covid to witness the historic impact for myself.
Source: History Stack Exchange
Why am I telling you this? Well, when reviewing investment opportunities and deploying your hard-earned money, a similarly strategic approach can help.
Do your homework. Understand the assets and opportunities of a business. Consider the potential for income growth.
Then, once you have built understanding and a clear conviction, press the button.
Now, nothing is certain in the investing world. You are always navigating risk. And fear.
But it was the same in 1945. Truman took a very weighty but calculated risk. It was devastating. Although some 225,000 lives were lost in the bombs on Hiroshima and Nagasaki, estimates suggest the surrender of Japan saved about 10 million people. That would’ve died had the war continued.
For many days before deployment, Truman considered advice and data. He considered the pros and cons from all angles. This is the sort of process investors need to use when adding companies to their portfolios.
And you must learn to find data in places where others don’t usually look.
Case in point: when considering a move to the countryside, I was wanting to assess the comparative safety of Devonport, Auckland versus a semi-rural area to the North.
Now, Devonport is sometimes mentioned as this country’s safest suburb. Yet on running an online insurance quote, it is 22% cheaper to insure my vehicle in the countryside.
Insurance companies tend to have the best numbers on crime and safety risk. Since they calculate insurance risk premiums every day.
This is the sort of analysis we do in our Lifetime Wealth Investor research. In fact, we’ve just added an NZX-listed business that we suspect could break out this year. Due to a couple of key things. I invite you to join us and take a look here.
Editor, Wealth Morning