68 | In Defense of Actively Picking Companies: You Can See It and You Can Feel It

Actively picking companies is a style of investing in which, instead of owning the entire group of companies available, you decide to intentionally own a subset of companies from a group.

This is how investments have been evaluated since the very first investment opportunity came about - investment opportunity presented, due diligence performed, and decision to own or pass on ownership made.

Actively selecting companies implies a belief that individuals have the ability to evaluate, buy, and hold companies whose value will increase more than the value of other companies over time.

You Can See It and You Can Feel It

Almost everyone can spot a good company when they see it.

If you can't see it, then you can certainly feel it.

Customer service that makes you feel like family. A sterling reputation in the community. Rave reviews that spread like wildfire. Lines out the door. Immediate sell outs of products and services. Owners and employees who are “cut from a different mold”.

Without looking at the numbers, I think most of us can identify companies that will outperform, last longer, and add more value to society than others.

The types of companies that lead people to say, "If only I could have bought a share of that company 20 years ago!" after a single interaction.

The characteristics of a successful business are often easy to observe firsthand.

The reality is that these things don't change just because the company isn't located in our neighborhood, or the company operates in an industry that we don't interact with each day.

Identifying and owning these companies is at the core of the active investing philosophy - some companies will perform better than others and others will not keep up, so be sure you pick the right ones.

Of course, there is a cost to selecting these companies. Someone must experience the customer service, feel the reputation, hear the reviews, see the lines, account for the sell outs, and talk to the employees, and this work requires some mixture of capital, time, attention, and energy to be expended.

This task is easier on paper than it is in practice, but history has shown us that the people who can do it well can generate significant investment returns.