From Values to Wealth: The Art of Meaningful Investing
"The least of things with a meaning is worth more in life than the greatest of things without it” – Carl Jung
Why Meaning
A life without meaning, regardless of external success can feel empty and unfulfilling.
True value lies in the connection and purpose we attach to something.
This is particularly true in investing. Investors who prioritise meaningful investments that align with their own values will:
Find more satisfaction and fulfilment in their financial decisions.
Have the purpose and direction required to analyse a company in depth.
Have the greatest chance of holding onto an investment for the long-term even in difficult times.
Ultimately when you invest with meaning you will see better results from both a financial and psychological point of view!
This is why meaning is built into the very core of the Focus investing philosophy. Remember we are looking to “Find high quality business with meaning to you”.
To put this into practice, meaning is also the first filter within our business selection process.
Meaning as a Filter
The purpose of the meaning filter is to ensure we Invest in businesses we understand, find interesting and are comfortable supporting. Investing is not just about financial returns—it is a personal endeavour that should align with our values, interests, and competencies. The goal of this filter is to help us focus on businesses that resonate with us on a deeper level, both intellectually and ethically, which enhances our commitment to the investment and increases the likelihood of long-term success.
This filter helps us answer two essential questions:
Aligned Values: Do I want to spend a significant amount of time learning about this business?
Circle of Competence: Do I understand how the business makes money and the competitive environment it operates in?
By answering these questions up front, we are able to discount the vast majority of companies that may not align with our interests or that we may not fully understand.
This allows us to focus our time, energy and capital on businesses that hold real meaning for us, making our investment journey more fulfilling and successful.
Aligned Values
"The intersection of what you are deeply passionate about, what you can be the best in the world at, and what drives your economic engine is the sweet spot for sustained success." — Jim Collins
Do you want to spend a significant amount of time learning about this business?
This question is not just about curiosity or interest—it is a critical filter that addresses whether a business aligns with who you are on a deeper level. For you to dedicate the necessary time and energy to truly understand a business, it must resonate with your personal interests, skills, experience, and values.
Here is how each element plays into this decision:
1. Interests:
If you are going to spend countless hours reading, researching, and learning about a business, it helps if it is in an area that genuinely interests you. Passion fuels commitment and deep understanding. Ask yourself:
What are you fundamentally interested in?
What topics, industries, or sectors naturally grab your attention?
2. Skills:
When you invest in a company within your skillset, you are leveraging your own strengths, which can give you a competitive edge in understanding complex business models or market dynamics. Ask yourself:
What skills and talents do you possess, either professionally or personally?
Are there any natural talents or areas of expertise that you can apply to your analysis of the business?
3. Experience:
Experience brings familiarity, and investing in businesses within sectors you have interacted with on a daily basis or have prior knowledge of can make your analysis more grounded and insightful. Ask yourself:
Where do you live, and how might your location give you insight into a particular industry?
Who do you know? What personal or professional networks do you have access to that could help you better understand a company or sector?
What exposure do you have to different businesses through your career, day-to-day activities, or personal experiences?
4. Purpose:
Ethical alignment is crucial. Investing is a personal endeavour, and it should reflect not only your financial goals but also your wider moral compass and purpose. You should feel comfortable with the impact of your investments on society and the environment. Ask yourself:
Are there specific causes or missions you want to support through your investments?
Are there any businesses or sectors you prefer to avoid because they conflict with your sense of purpose? (For example, defence, tobacco, and gambling industries)
Do the companies you invest in align with your broader vision for contributing positively to society?
Once you have really thought through and built a clear understanding of your interest, skills, experience and purpose, this framework can become a tool for both generating investment ideas or assessing potential opportunities.
If a business aligns with one or more of these dimensions, then you are off to a good start. By filtering through this lens, you are likely to invest in companies which are intellectually engaging which will lead to a more satisfying investment journey.
However, before investing we need to ensure that the business lies within our circle of competence…
Circle of Competence
"Know what you own and know why you own it." – Peter Lynch
Do I understand how the business makes money and the competitive environment it operates in?
This question ensures that the business falls within our circle of competence.
Understanding how a company generates revenue, what its key drivers of success are, and how it fits within its industry context is crucial for making informed investment decisions.
When we invest within our circle of competence, we reduce the risk of being blindsided by factors we do not fully grasp, and we improve our ability to assess future opportunities and challenges.
Your circle of competence will expand over time but a great place to start is by using your values as a lens. If a business aligns with your interest, skills, experience, or purpose then these is a good chance it falls within your circle of competence.
If it does not then there is a greater chance of you being able to pull the pieces together to understand the business, but it will take more effort and research.
The good new is that your circle of competence is not fixed and will grow with you as you grow as an investor.
However, it is important to recognise businesses that are truly outside of your circle of competence (for now at least!). A useful approach is to invert the questions and ask yourself: What is definitely outside my circle of competence? As Charlie Munger famously said:
"Invert, always invert: Turn a situation or problem upside down. Look at it backward. What happens if all our plans go wrong? Where don’t we want to go, and how do you get there? Instead of looking for success, make a list of how to fail instead. Through avoiding failure, you’ll be on the path to success." — Charlie Munger
By identifying the types of businesses or industries that require specialized knowledge beyond your current reach, you can avoid costly mistakes. Some classic examples where specialist knowledge is required include:
Banks: Due to the complexity of financial instruments, regulations, and leverage risks.
Biotechnology and Pharmaceuticals: Because of the intricacies of drug development, clinical trials, and FDA approvals.
Technology: Especially emerging sectors like AI and quantum computing, where rapid innovation and technical understanding are paramount.
Commodity Businesses: Where pricing is dictated by supply-demand dynamics and external factors like geopolitical issues.
This is not to say that these businesses are not within your circle of competence, but you will need to have a real specialism if you want to truly understand the business.
For example, I have worked within the financial services for over 10 years, and I would still not class myself as qualified to truly understand complex investment banks balance sheets and risk factors. Better to just stay clear!
Assessing your Competence
If you believe you have found a company that you want to investigate further and it appears to fall within your circle of competence, it is important to test this assumption.
One way to do this is by writing a paragraph in your own words explaining what they do, how they make their money and factors that can influence its success.
This exercise forces you to articulate your understanding and highlight any areas where you may be lacking knowledge.
Consider these factors in your analysis:
Business Model: How does the company generate revenue? What are its primary products or services?
Stakeholders: Who are the key stakeholders (customers, suppliers, regulators) that impact the business?
Competitive Landscape: What does the competitive environment look like? Who are the major competitors, and what differentiates this business?
By assessing your understanding, you can ensure that the company truly falls within your circle of competence, giving you the confidence to proceed with a potential investment.
Conclusion
In short, the Meaning filter is about aligning our investments with who we are as individuals.
It forces us to think beyond just the numbers and consider whether a business is something we genuinely want to be a part of.
Investing in companies that align with our values and competencies is not just good for our portfolio—it is good for our personal growth as investors.
Disclaimer
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