The world is continuously changing and is in motion. That is why those who can quickly adapt to current conditions and trends win and those who cannot keep the pace of today’s civilization fall behind. As time passes by, these laws of nature have been shifting more and more to the intellectual sphere. David believes that keeping savings in the form of stocks is the least risky protection against inflation in the long term because the money is actually invested in people who, by their work, create value that is currently in demand.
From a common sense point of view, it is clear that in order to create a portfolio with performance beating inflation and certain benchmarks, for instance the S&P 500 index, it is absolutely essential to engage in stock picking and try to identify only those most adaptable and trendy companies.
The selection of stocks for his portfolio is governed by a whole range of rules. First, he approaches each investment individually and sees it as unique, even when it has some common features with investments he has already encountered. Although he uses the knowledge of Henry Markowitz about the benefits of an uncorrelated portfolio and appropriate diversification, his portfolio consists of maximally 15 stocks or ETFs as academic studies have shown that it only took 12 to 18 stocks in a portfolio to eliminate 90% of unsystematic risk. He always buys stocks with the intention to invest, not speculate. He does not occupy short positions. He seeks global businesses, with high probability of expected continuous formidable growth of revenues and EPS, which are traded at a reasonable price. He almost always buys financially healthy companies with innovative products and high quality management. Sometimes, he also looks at intrinsic value calculations made by widely respected valuation gurus, such as Professor Aswath Damodaran. The change of market share price is the key factor for him, while dividends are only candies on the inhospitable way to profit. He compares the progress of share price with the progress of stock market index. He constantly extends his knowledge and overview of what is happening on the markets. He keeps a positive attitude and wants to outperform the major equity benchmarks over the long term.