Passive due diligence is a great way to ease the burden of investing. I’d consider active due diligence reading investor reports, substacks, etc… These forms of research take a long time and a lot of attention. We are all busy, so having different forms of diligence can really help ease the burden of investing.
Here are a few of my favorite forms:
The amount of information available is astounding and podcasts are one of my favorite ways to passively take in that information. A great example of how I have used this is with the podcast Business Breakdowns. As Alibaba stock started its steep decline, I became interested in the company as an investment. I started my research like I did any other of my stocks, by pulling up their annual report. These aren’t usually easy reads but Alibaba’s report was especially unruly at 596 pages. I was overwhelmed and needed a different way to research this stock. I quickly turned to Business Breakdowns to better understand the stock. In 30 minutes (2x speed for the win), I had a much better base to allow me to find the areas of the annual report I wanted to focus on. In addition, I was able to use podcasts to also better understand much of Alibaba’s competition (i.e Pinduoduo, etc…).
Conversations with Friends
I had an hour-long conversation with a friend of a friend on Roku. I was curious about Roku and he was obsessed with Roku. The drinks were flowing and so was the conversation. I learned a lot about Roku through this conversation but at no point did it ever feel like work. This is my favorite form of DD. It’s almost like lazy scuttlebutt. I think these kinds of conversations are everywhere. We live in an amazing time where the barriers to investing have been torn down. Everyone and their mother has heard or tried Robinhood. Most of my friends come from a non-financial background, but almost everyone has some experiences that can help investors. Everyone has insights on public companies (whether they be users, investors, or employees). Another example of this would be talking to realtor friends about Zillow and Redfin (or even friends who just went through a home buying experience).
Let’s be honest, most of us spend too much time on Twitter. I mindlessly browse Twitter for an hour a day. Yet, I do think FinTwit is a great resource. I don’t think I would even know Sea Limited was a company if I weren’t on FinTwit. Mindlessly browsing Twitter isn’t always mindless, it can be a great form of passive due diligence.
I’m not a huge fan of the news. News companies’ incentives are not aligned with mine (they are optimizing for clicks/views).
Many investors lack creativity. Reading fiction takes you into worlds that don’t (yet) exist. As a long-term investor, I’m investing for decades. The future is wild, consider the changes we had from 1991 to 2021. Then imagine trying to understand what the world will look like in 2051. Reading fiction helps imagine the possibilities. Some might question how reading fiction could be a form of due diligence, but I think it counts. An investing example I think this could apply to would be the metaverse. From Ready Player One to Snow Crash, reading fiction can open you to wild ideas when they first come up. What we are chasing after here is creativity, which can help us understand some founder’s crazy visions.
Lazy, but not that Lazy
Personally, I think a combination of active DD and passive DD is the path for part-time investors. In some ways you can blend the two, i.e listen to management calls on $SPOT while working out or driving to work. Active investing is a full-time job, but passive DD can significantly ease that burden.
P.S – this blog was inspired by Parrot Stock’s newsletter Stock Squawk. Check it out HERE.