Should You Invest With A Microscope Or A Telescope

What would you prefer to invest in? The best restaurant or a hungry crowd?

If you answered the best restaurant, your preference maybe to invest with a microscope. If not, you may prefer to invest with a telescope.

So which one is more important?

Investing with a microscope.
Microscope investors are also known as ‘value’ investors. They love to find great investments and purchase them at bargain prices. E.g. cheap blue chip shares or a house to renovate

Their goal is to profit on the purchase and wait.

Warren Buffett, the world’s second richest man, is a value investor. He began by reconditioning two pinball machines and placing them in barber shops. He invested the profits in quality stocks trading below their real values and continued doing this his whole life. Today he’s worth an estimated $50 billion dollars.

Value investors are courageous and look like geniuses in hindsight. They tend to be counter cyclical and often buy the best investments when no one else wants them. They don’t worry about the markets going up or down.

The catch – sometimes an investment may be cheap for a very good reason – there’s no growth left in it. I.e the crowd is no longer hungry. That’s why it’s important to consider…

Investing with a telescope.
Telescope investors regard themselves as ‘growth’ investors. They are constantly looking for emerging trends and opportunities with great growth potential. They are happy to pay a premium and ride the wave with the rest of the herd.

McDonalds is a great example of this. They’re not just in the burger business, they’re in the property business as well. Positioning for growth is what’s most important for them and they’re happy to pay a premium for good real estate.

That’s why buying a McDonalds franchise is very expensive. McDonalds know the growth is there and the returns will eventually come for a franchisee. Have you ever seen a Macca’s restaurants go broke? That’s why you never get them cheap.

McDonald’s aren’t concerned about having the best restaurant, they just want a hungry crowd.  Not convinced? How many people do you know who have been to McDonald’s on a date?

Growth investors can be quite emotive with their investments. They follow the herd because they find safety in numbers.

The catch – growth is very enticing because by nature people don’t like to miss out. However the downside of being a growth investor is paying too much for an investment and getting burnt.

So what’s more important?
In my opinion, the most important thing is knowing if you’re a microscope or a telescope investor and then to acknowledge the other side. This avoids buying a cheap investment with no growth potential or paying too much for a high growth investment.

However, if you wanted a rule of thumb to follow, I think it’s more important to find a hungry crowd than the best restaurant. Just watch a mother at dinner time. Hunger moves people!

But if you can invest with both, even better.