Synergies of Being an Investor AND a Consumer

"Consumer brands like Nike, Coca-Cola, or Starbucks all do somewhat similar things: they buy commodities (their raw materials) and sell brands. Nike's shoes and shirts might be nice, but the material isn't all that different than Russell's or Champion's, but you may not have even heard of the latter two companies and you likely have paid a 100% markup or more for Nike gear."
--John Huber, Saber Capital

Readers, the above quote is from a small hedge fund's year-end letter to clients. (Yes, I read letters like these in my spare time. For fun. Sad!)

This quote above, however, helped me crystallize an insight: think like an investor when you're a consumer. When you purchase something, who is on the other side of your trade? And how much money are they making off of you?

After all, savvy investors want to invest wherever there are juicy profit margins. Savvy consumers, on the other hand, buy products where there aren't juicy profit margins. If they want to get good value that is.

Therefore, if you think like an investor whenever you're out there buying stuff, you'll often discover both where not to buy--and where (possibly!) to invest. In other words, wherever you find a highly profitable company charging prices well above intrinsic value, forget buying the product. Buy the stock instead.


A quick final footnote: If you're interested in following various hedge funds and investment letters, and "borrowing" both interesting investing insights and specific stock ideas from many of the world's greatest investors, there's never been a better time than right now. Ten years ago, it was nearly impossible to get access to these letters. I'll offer readers few places to go to find them:

1) ValueWalk offers online access to investor letters from many well-regarded value investors. Some of the site's older, archived content sits behind a paywall.

2) Reddit has a Security Analysis subreddit with a long list of recent investor letters from a wide range of mutual funds and hedge funds.

3) At SeekingAlpha you can follow the changes in holdings of many major hedge funds (via official 13F filings at the SEC). See, for example, changes in Mohnish Pabrai's fund here. (Pabrai is a well-regarded value investor and the author of the exceptionally useful book The Dhandho Investor.)