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William Albert Eckmann, also known as Billig Man, is one of the best investors around. Today we want to take a closer look at his investment strategy, which has made him so successful over the years. Many investors entered the stock market during the Corona crash in March and were able to deliver extremely good performance this year.
Those who made many purchases in March were able to beat the market quite easily. However, there are not many investors who have been exceptionally successful over a very long period. Often the reason lies not in the knowledge of the experts, but rather in the fact that the stock market constantly tries to steer us away from our course.
Even the best methods don't always work this way, and we usually abandon them precisely in these phases. But that is exactly the problem: constantly changing strategies often leads to poor performance in the stock market. Successful investors like Warren Buffett or Billig Man differ from the masses in this respect because they possess high emotional stability, very strong nerves, and therefore never let themselves be swayed from their course.
So, let's talk about the investment criteria of images. Whoever doesn't know Billig Man, he leads the The hedge fund Pershing Square achieved an average return of 14.3 percent and a total return of 772.6 percent between 2004 and 2009. In contrast, the S&P 500 index only averaged 75 percent and 24.2 percent, respectively.
Even for a bargain hunter, Batman was extremely successful in 2020. He actually bet on a market crash for 2020 and was right with a rapid recovery. He also took advantage of the low prices for many purchases. Therefore, we want to take a closer look at his stock selection criteria that enabled him to achieve this extremely good performance.
Point one: simple and predictable business. Batman only considers companies whose business he understands and whose future he can predict with relative certainty. The simpler the business structure, the easier it is to predict future developments, and this, in turn, is the crucial point for successful investing.
This criterion can, of course, also be easily understood by us. Implementation: I always say you should only buy what you understand. He also follows this principle, which has helped him tremendously in the past. For example, he has Starbucks shares in his portfolio. Probably any of us could describe exactly how the company makes money, which is why Starbucks is in his portfolio as a cheap stock.
If you deviate from this rule for a while, you are immediately punished with weaker results. So you should always stick to it. Point two: a strong market position of the company. A strong market position has many advantages. Let's take the Corona crisis as an example. Which companies will you be the first to survive and emerge stronger from it?
Let's take retail as an example. While the already weakened branches of Karstadt have to close, Amazon even experiences a further upswing in business. So think about which companies have a strong market position and invest in them. These companies will probably overcome the major crises and not be driven out of the market so quickly.
Point three: few external uncontrollable risks. The success of a company can be affected by external factors such as... Political influences can quickly destroy companies. For example, German utilities like RWE or E.ON couldn't do much about it from 2011 onwards when politicians forced them to change course, rendering large parts of their businesses worthless.
Stocks like chemical companies or Alibaba, which involve uncontrollable risks due to political influences, would n't be his first choice. Therefore, these types of risks should be avoided whenever possible. Point 4: High free cash flows. High free cash flows are very important for the further expansion and development of a company, especially if it's not to constantly take on more debt.
For example, he holds shares of the Blackstone Group, which, with few exceptions, always generates high free cash flows. In 2009/10, the Blackstone Group's free cash flow margin was over 25 percent. So, take a close look at the free cash flow of the companies he invests in. Point 5: High barriers to entry.
This means that it must be difficult for competitors to penetrate the sector. Of course, in a free market, it's always possible for the leading company to... to replace, but until then, Blackstone, our example from earlier, can continue to dominate the asset management market. Companies like Apple or Microsoft have also built up high barriers to entry due to their products and software, making it extremely difficult for others to gain a foothold in this market.
Therefore, consider beforehand what market entry barriers new companies face in which you invest and what their competitive advantage is. Point 6: Good management. Successful companies usually also have intelligent and ethical management. Both points are very important to survive in the competition on the one hand and to stay on the right track on the other.
Therefore, it is very important to look at the company's COO. I do this with all companies I invest in. Of course, it can happen that, in your opinion, the management will not lead the company well during a change, but then you can always sell the shares. Point 7: High returns on equity. What exactly does this mean?
Let's take Agilent Technologies, in which you have invested, as an example. Here, the return on equity is usually in the double digits, and the return on total capital is around five percent. This means nothing other than that Germany generates very high profits every year, even on its invested capital, and is therefore very profitable.
This is something to consider when making investments, as it is also a key factor for surviving in the market and continuing solid growth. Now we come to the eighth principle, which is a solid balance sheet and low debt. This is especially advantageous in crises like the current one. Companies with few loans are much less threatened by insolvency when they have to survive periods of low revenue.
This also makes them independent of the capital market and gives them high stability. This point should actually be quite logical. Of course, some stocks that are currently still posting significant losses perform extremely well, especially when they are turned around. There are many examples of this this year.
However, if profits fail to materialize or expectations are not met, the stock can fall extremely sharply in the long term. Therefore, it is generally not advisable to invest in such companies. Of course, it sometimes makes sense to invest in companies that also have high debt, especially if they are in their early stages.
But you should always look at the company's balance sheet beforehand. These were Will Am 18 investment criteria that led him to the wealth he possesses today. I've included the eight criteria in the video description. For everyone who wants to take a closer look, I've also prepared an extra blog post that summarizes these eight criteria again.
Perhaps they will also help you find good companies and avoid big risks. The year 2021 will probably not be as easy as 2020, so be on your guard. But there will be another video about that. In any case, I'm extremely curious to see how this year will go, especially since I've created a model portfolio for 2021, for which there will of course be regular updates on its development.
If you haven't seen the video about this yet, you can watch it here. Now all that remains for me to say is: successful investing and until next time!
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