Emmet Savage is the chief investment officer and co-founder of MyWallSt, an online publication with a mission to get readers successfully investing in the stock market over a long-term time horizon. Over the past 19 years, his investments have been extremely successful, averaging a return of 696%.
There have been some down periods. Savage was wiped out during the dot-com bubble of 2000. But he has since made a comeback, keeping the learnings from the burst close to heart. “I still recall the feeling of panic when the dot-com bubble burst and my online broker locked me out from trading as I bought on margins, and the broker selling my positions in front of my eyes to cover the credit today extended to me,” he tells Opto Sessions.
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Savage has since constructed an investment philosophy built on tenets from the likes of Warren Buffett. “I think the one rule that links all investors when they’re buying shares in a business is the ability to identify some sort of sustainable economic moat or a sustainable competitive advantage,” he explains.
Savage’s investment strategy comprises five quantitative checks and five qualitative ones. On the quantitative side, “I look for… high insider ownership, which means that the founders, senior management and the management team running the business have between 5% and 40% of the issued capital.”
The next quantitative criterion is measuring market capitalisation and whether it is meaningful. Savage says that he next looks at enterprise value. “If the enterprise value is less than [a company’s] market cap, it has more cash than debt – and everybody loves that.” The fourth and fifth numeric attributes that he looks for are a great return on equity and sales growth.
Savage then runs some qualitative checks that sometimes are dependent on opinion or judgement. The first criterion is identifying a strong company culture, which he admits can be a challenge to discover or define. The second is whether the company has a sustainable competitive advantage, which could come in the form of patents or high entry barriers in the segment.
The third is whether customers think the company is important. “If you’re going to buy new welly boots, you want to see five stars from 2000 people on TrustPilot.” The fourth qualitative factor is a growing industry, and the fifth is assessing whether the company has visionary leaders.
These parameters are useful if investments are consistent, Savage says, adding that every year retail investors should identify 12 stocks to put money in one stock each month for the long term. “By going in long, you reduce taxes, stress, and most importantly, you allow your investment thesis to play out,” he says.
Savage is averse to using technical charts. “I don’t use technical indicators because they are blind to the very long-term opportunity that a business holds,” he clarifies.
To find out more about Savage’s winning calls on Netflix, Tesla, and Atlassian, listen to the full episode.
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