Don’t Fall For The Investing Myth Of The ‘Next Great Thing’
Entrepreneurs will tell you that good ideas themselves are not the secret to success, but the execution of them. You may have seen the story about the Winklevoss twins who had a legal claim on Facebook due to the fact that Facebook was their ‘idea’. Facebook didn’t disagree and paid the two quite a lot of money in an earlier settlement, but the pair wanted more because Facebook has turned out to be a much larger business than most people would have thought possible.
The lesson here is that the idea itself was only worth so much – and no more – because implementing and executing the idea is hard and time consuming. They can’t lay claim to any more of their growth because they weren’t around to assist in Facebook’s ultimate success. The court agreed and their larger claim was not granted.
If you watch cable TV finance programs, or perhaps read investing sites, you will see a lot of ink and electrons devoted to the ‘Next Great Thing’. Recently, there was a huge discovery of oil and gas reserves in the Bakken Shale region in North West U.S. So, the next question you might ask is how do you profit?
And, of course, it is possible to find publically traded companies that have rights in this region and that can profit from them (Jim Cramer has done multiple segments on this very topic). Once you find companies that can profit, you inevitably will want to ask the same questions about the company as an investment as you would any other to be certain that it actually is a good investment.
This strategy has risks. Simply owning rights to an oil rich region doesn’t necessarily guarantee access to capital and profit because execution matters. A far less risky approach is to buy a high quality company when it’s on sale that already is known to execute its business well. We had an opportunity to buy ExxonMobil in the summer of 2010 at a price that was lower than the 2008 Financial Crisis price which put its dividend yield at an unprecedented 3%.
This isn’t as sexy or as exciting but in the end profit at lower risk is what matters.