Our goal is to turn our savings (idle money) into capital. We do this by treating our money as any other property and putting it to productive use, the same as we would make our farm property fruitful by sewing seeds and irrigating it. St. Bernardine, a Franciscan monk in the early 15th century, developed the idea of money being the same as property and man’s commandment to make the earth fruitful applied also to our money- it should be made into capital, and it should not sit idle as warned against in the parable of the talents. 

To achieve our goal of employing idle money into capital to return a profit, two things are necessary: laboring to skillfully choose how our money should be capitalized, and second, using the fruits of that capital in a productive way- either to compound profit for future use, or to the benefit of our immediate family or society. If we are successful in the first part, but deficient in the second, our efforts amount to a form of gluttony. 

So the endeavor of this series to layout a rational method of capitalizing our money. The means we are using is the public market for common stocks (aka: investing in the stock market), as this is simply the most accessible means for average Americans to pursue capital appreciation. And as we have just laid out in the preceding paragraphs, capital appreciation is a desirable endeavor, so let’s set about the task!

In the broadest sense, we seek to (1) purchase shares of companies of which we would like to be owners because the companies possess some characteristic that we desire, (2) are offered at a price that we judge to be reasonable to us, and (3) shares that are judged to be attractive by institutional investors that have the buying power to buy shares after our purchase. The first part is rather intuitive, yet is generally not the focus of current market participants who seem to be placing an inordinate emphasis on owning shares for the price appreciation or exposure to the asset class of stocks for the reason of price appreciation potential. Experience teaches us that this desire for gain, when it is the substantial portion of, or even the sole decision criteria, relegates the capital allocation decision to the realm of speculation entirely. The game of speculation is truly one of the great games in civilization and requires great skill, but it is not the focus of this series. And lest the reader assumes this series will consist entirely of academic pronunciations against speculation, rest assured, we hold no scruples about the role that speculation plays in any capital allocation decision. Our aim is to make speculation the smallest part of our decision through rigorous analysis, which brings us to the second aim we seek and where we must expend much of our energy and labor- judging what is a reasonable price to pay for a desirable company we’ve identified. Lastly, we will try to limit our ownership to shares that we hypothesize to be desired by institutional investors and in low supply.

The process outlined above is similar to any product evaluation you see online with one addition: the third step. In essence, a product evaluation for shares is what we are aiming to do, with the addition of making a judgement as to the attraction to the product by consumers with more money than us. We will only achieve our goal of successful capital allocation if we get that third part correct. We could nail the first two, but without the third, we are just not going to get our capital to be fruitful and multiply…